As filed with the Securities and Exchange
Commission on February 2, 2000.
Registration No. 333-90577
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS
REGISTERED ON FORM N-8B-2
Pre-Effective Amendment No. 2
-----------------
SECURITY LIFE SEPARATE ACCOUNT L1
(Exact Name of Trust)
SECURITY LIFE OF DENVER INSURANCE COMPANY
(Name of Depositor)
1290 Broadway
Denver, Colorado 80203-5699
(Address of Depositor's Principal Executive Offices)
Copy to:
GARY W. WAGGONER, ESQ. KIMBERLY J. SMITH, ESQ.
Security Life of Denver Insurance Company Sutherland Asbill & Brennan LLP
1290 Broadway 1275 Pennsylvania Avenue, NW
Denver, Colorado 80203-5699 Washington, D.C. 20004-2415
(202) 383-0314
(Name and Address of Agent for Service)
----------------------------
Title of securities being registered: Corporate Benefits variable life insurance
policies.
Approximate date of proposed public offering: as soon as practicable after the
effective date of this Registration Statement.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
Form V-112-00
<PAGE>
SECURITY LIFE SEPARATE ACCOUNT L1 (File No. 333-90577)
Cross-Reference Table
Form N-8B-2 Item No. Caption in Prospectus
- -------------------- ---------------------
1, 2 Cover; Security Life of Denver Insurance Company;
Security Life Separate Account L1
3 Inapplicable
4 Security Life of Denver Insurance Company
5, 6 Security Life Separate Account L1
7 Inapplicable
8 Financial Statements
9 Inapplicable
10(a),(b),(c),(d),(e) Policy Summary; Policy Values, Determining the
Value in the Variable Division; Charges and
Deductions; Surrender; Partial Withdrawals;
The Guaranteed Interest Division; Transfers of
Account Value; Right to Exchange Policy; Lapse;
Reinstatement; Premiums
10(f) Voting Privileges; Right to Change Operations
10(g), (h) Right to Change Operations
10(i) Tax Considerations; Detailed Information about the
Policy; General Policy Provisions; The Guaranteed
Interest Division
11, 12 Security Life Separate Account L1
13 Policy Summary; Charges and Deductions; Group or
Sponsored Arrangements or Corporate Purchasers
ii
<PAGE>
Form N-8B-2 Item No. Caption in Prospectus
- -------------------- ---------------------
14, 15 Policy Summary; Free Look Period; General Policy
Provisions; Applying for a Policy
16 Premiums; Allocation of Net Premiums; How We
Calculate Accumulation Unit Values For Each Division
17 Payment; Surrender; Partial Withdrawals
18 Policy Summary; Tax Considerations; Detailed
Information about the Policy; Security Life Separate
Account L1
19 Reports to Owners; Notification and
Claims Procedures; Performance Information
(Appendix B)
20 See 10(g) & 10(a)
21 Policy Loans
22 Policy Summary; Premiums; Grace Period; Security
Life Separate Account L1; Detailed Information
about the Policy
23 Inapplicable
24 Inapplicable
25 Security Life of Denver Insurance Company
26 Inapplicable
27, 28, 29, 30 Security Life of Denver Insurance Company
31, 32, 33, 34 Inapplicable
35 Inapplicable
36 Inapplicable
iii
<PAGE>
Form N-8B-2 Item No. Caption in Prospectus
- -------------------- ---------------------
37 Inapplicable
38, 39, 40, 41(a) General Policy Provisions; Distribution of
the Policies; Security Life of Denver Insurance
Company
41(b), 41(c), 42, 43 Inapplicable
44 Determining the Value in the Variable Division;
How We Calculate Accumulation Unit Values
45 Inapplicable
46 Partial Withdrawals; Detailed Information about
the Policy
47, 48, 49, 50 Inapplicable
51 Detailed Information about the Policy
52 Determining the Value in the Variable Division;
Right to Change Operations
53(a) Tax Considerations
53(b), 54, 55 Inapplicable
56, 57, 58 Inapplicable
59 Financial Statements
iv
<PAGE>
As filed with the Securities and Exchange
Commission on February 1, 2000.
Registration No. 333-90577
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS
REGISTERED ON FORM N-8B-2
Pre-Effective Amendment No. 2
-----------------
SECURITY LIFE SEPARATE ACCOUNT L1
(Exact Name of Trust)
SECURITY LIFE OF DENVER INSURANCE COMPANY
(Name of Depositor)
1290 Broadway
Denver, Colorado 80203-5699
(Address of Depositor's Principal Executive Offices)
Copy to:
GARY W. WAGGONER, ESQ. KIMBERLY J. SMITH, ESQ.
Security Life of Denver Insurance Company Sutherland Asbill & Brennan LLP
1290 Broadway 1275 Pennsylvania Avenue, NW
Denver, Colorado 80203-5699 Washington, D.C. 20004-2415
(202) 383-0314
(Name and Address of Agent for Service)
----------------------------
Title of securities being registered: Corporate Benefits variable life insurance
policies.
Approximate date of proposed public offering: as soon as practicable after the
effective date of this Registration Statement.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
Form V-112-00
<PAGE>
SECURITY LIFE SEPARATE ACCOUNT L1 (File No. 333-90577)
Cross-Reference Table
Form N-8B-2 Item No. Caption in Prospectus
- -------------------- ---------------------
1, 2 Cover; Security Life of Denver Insurance Company;
Security Life Separate Account L1
3 Inapplicable
4 Security Life of Denver Insurance Company
5, 6 Security Life Separate Account L1
7 Inapplicable
8 Financial Statements
9 Inapplicable
10(a),(b),(c),(d),(e) Policy Summary; Policy Values, Determining the
Value in the Variable Division; Charges and
Deductions; Surrender; Partial Withdrawals;
The Guaranteed Interest Division; Transfers of
Account Value; Right to Exchange Policy; Lapse;
Reinstatement; Premiums
10(f) Voting Privileges; Right to Change Operations
10(g), (h) Right to Change Operations
10(i) Tax Considerations; Detailed Information about the
Policy; General Policy Provisions; The Guaranteed
Interest Division
11, 12 Security Life Separate Account L1
13 Policy Summary; Charges and Deductions; Group or
Sponsored Arrangements or Corporate Purchasers
ii
<PAGE>
Form N-8B-2 Item No. Caption in Prospectus
- -------------------- ---------------------
14, 15 Policy Summary; Free Look Period; General Policy
Provisions; Applying for a Policy
16 Premiums; Allocation of Net Premiums; How We
Calculate Accumulation Unit Values For Each Division
17 Payment; Surrender; Partial Withdrawals
18 Policy Summary; Tax Considerations; Detailed
Information about the Policy; Security Life Separate
Account L1
19 Reports to Owners; Notification and
Claims Procedures; Performance Information
(Appendix B)
20 See 10(g) & 10(a)
21 Policy Loans
22 Policy Summary; Premiums; Grace Period; Security
Life Separate Account L1; Detailed Information
about the Policy
23 Inapplicable
24 Inapplicable
25 Security Life of Denver Insurance Company
26 Inapplicable
27, 28, 29, 30 Security Life of Denver Insurance Company
31, 32, 33, 34 Inapplicable
35 Inapplicable
36 Inapplicable
iii
<PAGE>
Form N-8B-2 Item No. Caption in Prospectus
- -------------------- ---------------------
37 Inapplicable
38, 39, 40, 41(a) General Policy Provisions; Distribution of
the Policies; Security Life of Denver Insurance
Company
41(b), 41(c), 42, 43 Inapplicable
44 Determining the Value in the Variable Division;
How We Calculate Accumulation Unit Values
45 Inapplicable
46 Partial Withdrawals; Detailed Information about
the Policy
47, 48, 49, 50 Inapplicable
51 Detailed Information about the Policy
52 Determining the Value in the Variable Division;
Right to Change Operations
53(a) Tax Considerations
53(b), 54, 55 Inapplicable
56, 57, 58 Inapplicable
59 Financial Statements
iv
<PAGE>
Prospectus
CORPORATE BENEFITS VARIABLE UNIVERSAL LIFE
A FLEXIBLE PREMIUM
VARIABLE UNIVERSAL LIFE INSURANCE POLICY
issued by
SECURITY LIFE OF DENVER INSURANCE COMPANY
AND
SECURITY LIFE SEPARATE ACCOUNT L1
Consider carefully the policy charges and deductions beginning on page 40 in
this prospectus.
You should read this prospectus and keep it for future reference. A prospectus
for each underlying fund portfolio must accompany and should be read together
with this prospectus.
This policy is not available in all jurisdictions. This policy is not offered in
any jurisdiction where this type of offering is not legal. Depending on the
state where it is issued, policy features may vary. You should rely only on the
information contained in this prospectus. We have not authorized anyone to
provide you with information that is different.
Replacing your existing life insurance policy(ies) with this policy may not be
beneficial to you.
Your Policy
o is a flexible premium variable universal life insurance policy
o is issued by Security Life of Denver Insurance Company
o is designed primarily for use on a multi1-life basis when the
insured people share a common employment or business
relationship and
o is returnable by you during the free look period or right to
examine policy period if you are not satisfied.
YOUR POLICY PREMIUM PAYMENTS
o are flexible, so the premium amount and frequency may vary
o are allocated to variable investment options and the
guaranteed interest division based on your instructions
o are invested in shares of the underlying investment portfolios
under each variable investment option and
o can be invested in up to eighteen investment options over the
policy's lifetime.
YOUR ACCOUNT VALUE
o is the sum of your holdings in the variable division, the
guaranteed interest division and the loan division
o has no guaranteed minimum cash value under the variable
division. The value varies with the value of the underlying
investment portfolio
o has a minimum guaranteed rate of return if you have an
amount in the guaranteed interest division and
o is subject to various expenses and charges.
DEATH PROCEEDS
o are paid if the policy is in force when the insured person dies
o are equal to the death benefit minus an outstanding policy
loan, accrued loan interest and unpaid charges incurred before
the insured person dies
o are calculated under your choice of options;
* Option 1- a fixed minimum death benefit
* Option 2- a stated death benefit plus your account value
* Option 3- a stated death benefit plus the sum of the premiums
we receive minus partial withdrawals and
o are generally not federally income taxed if your policy continues
to meet the federal income tax definition of life insurance.
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED THESE
SECURITIES OR DETERMINED THAT THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS LIFE INSURANCE POLICY IS NOT A BANK DEPOSIT OR OBLIGATION, FEDERALLY
INSURED, OR BACKED BY ANY BANK OR GOVERNMENTAL AGENCY.
DATE OF PROSPECTUS: _____________ ___, 2000
Form V-112-00
<PAGE>
ISSUED BY:Security Life of Denver UNDERWRITTEN BY: ING America Equities, Inc.
Insurance Company 1290 Broadway
Security Life Center Denver, CO 80203-5699
1290 Broadway (303) 860-2000
Denver, CO 80203-5699
(800) 525-9852
THROUGH ITS: Security Life Separate Account L1
ADMINISTERED BY: Customer Service Center
P.O. Box 173888
Denver, CO 80217-3888
(800) 848-6362
- --------------------------------------------------------------------------------
Corporate Benefits 2
<PAGE>
TABLE OF CONTENTS
POLICY SUMMARY.................................................................4
Your Policy...............................................................4
Free Look Period..........................................................4
Your Policy Premiums......................................................4
Charges and Deductions....................................................5
Fees and Expenses of the Investment Portfolios............................6
Variable Division.........................................................8
Policy Values.............................................................8
Transfers of Account Value................................................9
Special Policy Features...................................................9
Policy Modification, Termination and Continuation
Features.............................................................10
Death Benefits...........................................................10
Tax Considerations.......................................................10
INFORMATION ABOUT SECURITY LIFE, THE SEPARATE ACCOUNT AND THE
INVESTMENT OPTIONS.......................................................11
Security Life of Denver Insurance Company................................11
Security Life Separate Account L1........................................11
Investment Portfolio Objectives..........................................12
The Guaranteed Interest Division.........................................16
Maximum Number of Investment Options.....................................17
DETAILED INFORMATION ABOUT THE
POLICY...................................................................17
Applying for a Policy....................................................17
Temporary Insurance......................................................18
Premiums.................................................................18
Premium Payments Affect Your Coverage....................................20
Death Benefits...........................................................20
Adjustable Term Insurance Rider..........................................24
Special Features.........................................................25
Policy Values............................................................26
Transfers of Account Value...............................................28
Dollar Cost Averaging....................................................28
Automatic Rebalancing....................................................29
Policy Loans.............................................................30
Partial Withdrawals......................................................31
Lapse....................................................................32
Reinstatement............................................................33
Surrender................................................................33
General Policy Provisions................................................33
Free Look Period.....................................................33
Your Policy..........................................................34
Age ................................................................34
Ownership............................................................34
Beneficiary(ies).....................................................34
Collateral Assignment................................................34
Incontestability.....................................................35
Misstatements of Age or Gender.......................................35
Suicide..............................................................35
Transaction Processing...............................................35
Notification and Claims Procedures...................................36
Telephone Privileges.................................................36
Non-participation....................................................36
Distribution of the Policies.........................................36
Advertising Practices and Sales Literature...........................37
Settlement Provisions................................................37
Administrative Information About the Policy..............................38
CHARGES AND DEDUCTIONS........................................................40
Deductions from Premiums.................................................40
Deferred Sales Charge....................................................40
Monthly Deductions from Account Value....................................41
Policy Transaction Fees..................................................42
Group or Sponsored Arrangements or Corporate
Purchasers...........................................................43
Other Charges............................................................44
TAX CONSIDERATIONS............................................................44
Tax Status of the Policy.................................................44
Diversification Requirements.............................................44
Tax Treatment of Policy Death Benefits...................................45
Modified Endowment Contracts.............................................45
Multiple Policies........................................................45
Distributions Other than Death Benefits from
Modified Endowment Contracts.........................................45
Distributions Other than Death Benefits from
Policies That Are Not Modified Endowment Contracts...................46
Investment in the Policy.................................................46
Policy Loans.............................................................46
Section 1035 Exchanges...................................................46
Tax-exempt Policy Owners.................................................46
Possible Tax Law Changes.................................................46
Changes to Comply with the Law...........................................46
Other....................................................................47
ILLUSTRATIONS.................................................................48
ADDITIONAL INFORMATION........................................................62
Directors and Officers...................................................62
Regulation...............................................................64
Legal Matters............................................................64
Legal Proceedings........................................................64
Experts..................................................................64
Registration Statement...................................................64
FINANCIAL STATEMENTS..........................................................66
APPENDIX A...................................................................200
APPENDIX B...................................................................201
- --------------------------------------------------------------------------------
Corporate Benefits 3
<PAGE>
POLICY SUMMARY
THIS SUMMARY HIGHLIGHTS SOME OF THE IMPORTANT POINTS ABOUT YOUR POLICY. THE
POLICY IS MORE FULLY DESCRIBED IN THE ATTACHED, COMPLETE PROSPECTUS. PLEASE READ
THE PROSPECTUS CAREFULLY. "WE," "US," "OUR," AND THE "COMPANY" REFER TO SECURITY
LIFE OF DENVER INSURANCE COMPANY. "YOU" AND "YOUR" REFER TO THE POLICY OWNER.
THE OWNER IS THE INDIVIDUAL, ENTITY, PARTNERSHIP, REPRESENTATIVE OR PARTY WHO
MAY EXERCISE ALL RIGHTS OVER THE POLICY AND RECEIVE THE POLICY BENEFITS DURING
THE INSURED PERSON'S LIFETIME.
STATE VARIATIONS ARE COVERED IN A SPECIAL POLICY FORM FOR USE IN THAT STATE.
THIS PROSPECTUS PROVIDES A GENERAL DESCRIPTION OF THE POLICY. YOUR ACTUAL POLICY
AND RIDERS ARE THE CONTROLLING DOCUMENTS. IF YOU WOULD LIKE TO REVIEW A COPY OF
THE POLICY AND RIDERS, CONTACT OUR CUSTOMER SERVICE CENTER.
YOUR POLICY
This policy is available only to groups of ten or more insured people.
Generally, we require a minimum total group first year premium of at least
$250,000. However, depending on underwriting circumstances, we may reduce the
minimum total group first year premium in some cases. We generally require a
minimum target death benefit of $50,000 per policy. We may reduce the minimum
target death benefit if the average target death benefit at policy issuance for
the group is at least $50,000. SEE POLICY ISSUANCE, PAGE 17.
Your policy provides life insurance protection on the insured person. The policy
includes the basic policy, applications, and riders or endorsements. As long as
the policy remains in force, we pay a death benefit at the death of the insured
person. While your policy is in force, you may access your policy value by
taking loans or partial withdrawals. You may also surrender your policy for its
surrender value. When the insured person reaches age 100, the policy can be
surrendered or continued under the continuation of coverage option. SEE
CONTINUATION OF COVERAGE, PAGE 26.
We designed this policy primarily for use on a multi- life basis where the
insured people share common employment or a business relationship. The policy
may be owned individually or by a corporation, trust, association or similar
entity.
Life insurance is not a short-term investment. You should evaluate your need for
life insurance coverage and this policy's long-term investment potential and
risks before purchasing a policy.
FREE LOOK PERIOD
Within limits as specified by state law, you have the right to examine your
policy and return it for a refund of the premium payments we receive or the
account value if you are not satisfied for any reason. The policy is then void.
SEE FREE LOOK PERIOD, PAGE 33.
YOUR POLICY PREMIUMS
The policy is a flexible premium policy because the amount and frequency of the
premium payments you make may vary within limits. You must make premium
payments:
o for us to issue your policy; and
o sufficient to keep your policy in force.
On your application, you choose how much and how often you want to pay premiums.
Depending on your choices, it may not be enough to keep your policy or riders in
force. The amount of premium you pay affects the length of time your policy
stays in force. SEE PREMIUMS, PAGE 18.
ALLOCATION OF NET PREMIUMS
This policy has premium-based charges which are subtracted from your payments.
We add the balance, or the net premium, to your policy based on your investment
instructions. You may allocate the net premium among one or more variable
investment options and the guaranteed interest division. You may not invest in
more than eighteen investment options, including the guaranteed interest
division, over the life of your policy. SEE MAXIMUM NUMBER OF INVESTMENT
OPTIONS, PAGE 17.
We apply the net premium payments to your policy after we:
o receive your initial premium;
o have the information we require;
o approve your policy application; and
o issue your policy.
- --------------------------------------------------------------------------------
Corporate Benefits 4
<PAGE>
You need to allocate your premium to your investment choices in percentages that
are whole numbers and which total 100%. SEE ALLOCATION OF NET PREMIUMS, PAGE 19.
CHARGES AND DEDUCTIONS
DEDUCTIONS FROM PREMIUMS
We make the following deductions from each premium payment you make:
1. Tax charges -- In the first policy or segment year, we deduct a charge
of 2.5% of premiums for state and local taxes up to target premium. In
subsequent years, we deduct 2.5% of all premiums we receive. In the
first policy or segment year, we deduct the charge of 1.5% of premiums
up to target premium to cover our estimated cost of the federal income
tax treatment of deferred acquisition costs. In subsequent years, we
currently deduct 1.5% of premiums you make. These charges may increase.
SEE TAX CHARGES, PAGE 40.
2. Sales charge -- We deduct a percentage of each premium to cover a
portion of our expenses in selling your policy. This charge is 2% of
premiums we receive in the first policy or segment year up to target
premium. Thereafter, this charge is 0.5% of the premiums we receive.
This charge is a guaranteed maximum. SEE DEDUCTIONS FROM PREMIUMS, PAGE
40.
DEFERRED SALES CHARGE
The deferred sales charge is based on a percentage of the premiums that you pay
during the first ten policy or segment years. It is deducted from the account
value at the beginning of each policy year for seven years after a year in which
a premium payment is made. A deferred sales charge is calculated for premiums
paid for each policy segment. This charge is a guaranteed maximum. SEE DEFERRED
SALES CHARGE, PAGE 40, AND CHANGES IN DEATH BENEFIT AMOUNTS, PAGE 23.
Policy or | Deferred Sales Charge |
Segment | (% of Premium)* |
Year When --------------------------- Deducted at
Premium | up to in Excess | Beginning of
Payment | Target of Target | Policy or
are Made | Premium Premium | Segment Years
- -------------| ----------------------- | -------------
| |
1 | 2% 1% | 2 - 8
2 | 1.75% N/A | 3 - 9
3 | 1.75% N/A | 4 - 10
4 | 1.75% N/A | 5 - 11
5 | 0.5% N/A | 6 - 12
6 | 0.5% N/A | 7 - 13
7 | 0.5% N/A | 8 - 14
8 | 0.5% N/A | 9 - 15
9 | 0.5% N/A | 10 - 16
10 | 0.5% N/A | 11 - 17
* THESE ARE THE PERCENTAGES USED TO DETERMINE THE ANNUAL DEDUCTION. ONCE
DETERMINED, THE ANNUAL DEDUCTION IS MADE ONCE EACH YEAR FOR SEVEN YEARS.
MONTHLY DEDUCTIONS FROM YOUR ACCOUNT VALUE
We deduct the following charges from your account value at the beginning of each
policy month. The charges shown are guaranteed maximums unless we disclose
otherwise.
1. Monthly administrative charge-- $12 per month for the first policy
year, then $6 per month for each policy year beyond that.
2. Cost of insurance charge-- Based on the net amount at risk on the life
of the insured person. The amount of this charge differs for:
o the segments of the base death benefit; and
o the adjustable term insurance rider.
It may change over time.
3. Mortality and Expense Risk Charge -- we assess a mortality and expense
risk charge of 0.01667% per month (0.20% annually) against the variable
investment options. This charge compensates us for mortality and
expense risks under the policies.
SEE MONTHLY DEDUCTIONS FROM YOUR ACCOUNT VALUE, PAGE 41.
POLICY TRANSACTION FEES
We deduct policy transaction fees from your account value at the time of the
transaction.
The following are the current transaction fees. The charges shown are guaranteed
maximums. SEE POLICY TRANSACTION FEES, PAGE 42.
- --------------------------------------------------------------------------------
Corporate Benefits 5
<PAGE>
1. Partial withdrawal fee-- $25.
2. Transfer fee-- We allow twelve free transfers among investment options
per policy year. For each transfer beyond that, a $10 fee may apply.
3. Illustrations-- You may request one free illustration per policy year.
For each illustration beyond that, a $25 fee applies.
4. Premium Allocation Change -- You may make twelve free premium
allocation changes per policy year. For each premium allocation change
beyond that, a $25 fee applies.
5. Continuation of Coverage Fee -- We will charge a one-time $200
administrative fee when the insured person turns age 100 to activate
continued coverage.
FEES AND EXPENSES OF THE INVESTMENT PORTFOLIOS
The separate account purchases shares of the investment portfolios, or series,
at net asset value. This price reflects investment management fees and other
direct expenses that are deducted from the portfolio assets. The following table
describes these investment management fees and other direct expenses of the
investment portfolios. The fees and expenses are shown in both gross amounts and
net amounts shown after any expenses or fees have been voluntarily absorbed by
the investment portfolio advisers.
- --------------------------------------------------------------------------------
Corporate Benefits 6
<PAGE>
INVESTMENT PORTFOLIO ANNUAL EXPENSES (AS A PERCENTAGE OF PORTFOLIO AVERAGE NET
ASSETS) /1/
<TABLE>
<CAPTION>
Fees and
Investment Total Expenses Total Net
Management Other Portfolio Waived or Portfolio
Portfolio Fees Expenses Expenses Reimbursed Expenses
--------- ---- -------- -------- ---------- --------
<S> <C> <C> <C> <C> <C>
AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. Capital Appreciation Fund 0.62% 0.05% 0.67% NA 0.67%
AIM V.I. Government Securities Fund 0.50% 0.26% 0.76% NA 0.76%
THE ALGER AMERICAN FUND
Alger American Growth Portfolio 0.75% 0.04% 0.79% NA 0.79%
Alger American MidCap Growth Portfolio 0.80% 0.04% 0.84% NA 0.84%
Alger American Small Capitalization Portfolio 0.85% 0.04% 0.89% NA 0.89%
FIDELITY VARIABLE INSURANCE PRODUCTS FUND
VIP Growth Portfolio 0.59% 0.09% 0.68% NA 0.68%/2/
VIP Overseas Portfolio 0.74% 0.17% 0.91% NA 0.91%/2/
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II
VIP II Index 500 Portfolio 0.24% 0.11% 0.35% 0.07% 0.28%/3/
GCG TRUST /4/
Equity Income Portfolio 0.98% 0.00% 0.98% NA 0.98%
Growth Portfolio 1.08% 0.01% 1.09% NA 1.09%
Hard Assets Portfolio 0.98% 0.02% 1.00% NA 1.00%
Limited Maturity Bond Portfolio 0.60% 0.00% 0.60% NA 0.60%
Liquid Asset Portfolio 0.59% 0.00% 0.59% NA 0.59%
Mid-Cap Growth Portfolio 0.94% 0.01% 0.95% NA 0.95%
Research Portfolio 0.94% 0.00% 0.94% NA 0.94%
Total Return Portfolio 0.94% 0.04% 0.98% 0.01%/5/ 0.97%
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO VIF-Equity Income Fund 0.75% 0.42% 1.17%/6/ 0.24%/7/ 0.93%
INVESCO VIF-High Yield Fund 0.60% 0.47% 1.07% NA 1.07%
INVESCO VIF-Small Company Growth Fund 0.75% 11.92% 12.67%/6/ 10.80%/8/ 1.87%
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST /9/
Partners Portfolio 0.78% 0.06% 0.84% NA 0.84%
VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Bond Fund 1.00% 0.15% 1.15% NA 1.15%
Worldwide Emerging Markets Fund 1.00% 0.61% 1.61%/6/ 0.31%/10/ 1.30%
Worldwide Real Estate Fund 1.00% 4.32% 5.32%/6/ 4.43%/11/ 0.89%
</TABLE>
/1/ The portfolio expense information was provided to us by the portfolios, and
we have not independently verified such information. These portfolio expenses
are not direct charges against variable investment options assets or reduction
from contract values; rather these portfolio expenses are taken into
consideration in computing each underlying portfolio's net asset value, which is
the share price used to calculate the unit values of the variable investment
options. For a more complete description of the portfolios' costs and expenses,
see the prospectuses for the portfolios.
/2/ A Portion of the brokerage commissions that certain funds pay was used to
reduce fund expenses. In addition, certain funds have entered into arrangements
with their custodian whereby credits realized, as a result of uninvested cash
balances were used to reduce custodian expenses. Including these reductions, the
total portfolio expenses presented in the table would have been 0.66% for Growth
Portfolio and 0.89% for Overseas portfolio.
- --------------------------------------------------------------------------------
Corporate Benefits 7
<PAGE>
/3/ FMR agreed to reimburse a portion of Index 500 Portfolio's expenses during
the period. Without this reimbursement, the funds' total portfolio expenses
would have been 0.35%.
/4/ Directed Services, Inc. ("DSI") serves as the overall manager of the GCG
Trust. The fee shown is a management fee. Fees decline as the total assets of
certain combined portfolios increase. DSI provides or procures at its own
expense, the services necessary for the operation of the portfolios. DSI does
not bear the expense of brokerage fees and other transactional expenses for
securities, taxes (if any) paid by a portfolio, interest on borrowing, fees and
expenses of the independent trustees, and extraordinary expenses, such as
litigation or indemnification expenses. The GCG Trust pays DSI for its services
a monthly fee based on the annual rates of the average daily net assets of the
investment portfolios. DSI (and not the GCG Trust) in turn pays each portfolio
manager a monthly fee for managing the assets of the portfolios. More detailed
information about each portfolio's management fees and expenses can be found in
the prospectus of the GCG Trust. You should read this prospectus before
investing.
/5/ DSI is currently reimbursing expenses to maintain total expenses at 0.97%
for the Total Return Portfolio. Without this reimbursement, and based on actual
reimbursements for the fiscal year ended December 31, 1998, total expenses for
this portfolio would have been 0.98%. This agreement to reimburse may end at any
time.
/6/ Certain expenses of the Fund are being voluntarily absorbed by the Funds.
/7/ Certain expenses of the VIF-Equity Income Fund (formerly VIF-Industrial
Income Fund) are being absorbed voluntarily by INVESCO Funds Group, Inc.
pursuant to a commitment to the Fund. After absorption, the VIF-Equity Income
Fund's "Other Expenses" and "Total Portfolio Expenses" were 0.18% and 0.93%
respectively. This commitment can be changed at any time following consultation
with the board of directors.
/8/ Certain expenses of the VIF-Small Company Growth Fund are being absorbed
voluntarily by INVESCO Funds Group, Inc. pursuant to a commitment to the Fund.
After absorption, the VIF-Small Company Growth Fund's "Other Expenses" and
"Total Portfolio Expenses" were 1.12% and 1.87% respectively. This commitment
can be changed at any time following consultation with the board of directors.
/9/ Neuberger Berman Advisers Management Trust (the "Trust") is divided into
portfolios ("Portfolios"), each of which invests all of its net investable
assets in a corresponding series ("Series") of Advisers Managers Trust. The
figures reported under "Investment Management and Administration Fees" include
the aggregate of the administration fees paid by the Portfolio and the
management fees paid by its corresponding Series. Similarly, the "Other
Expenses" includes all other expenses of the Portfolio and its corresponding
Series. See "Expenses" in the Trust's Prospectus. Expenses may reflect expense
reimbursement. NBMI has undertaken to reimburse certain operating expenses,
including compensation of NBMI and excluding taxes, interest, extraordinary
expense, brokerage commissions and transaction costs, that exceed, in the
aggregate, 1% of the Portfolios' average daily net asset value. These expense
reimbursement policies are subject to termination upon 60 days written notice to
the Portfolios.
/10/ Van Eck Associates Corporation (the "Advisor") absorbed expenses exceeding
1.50% of the Fund's average daily net assets. Due to this arrangement, the
actual expenses incurred were "Total Portfolio Expenses" of 1.50%. The Adviser
has voluntarily agreed to limit the Worldwide Emerging Markets Fund's total
annual operating expenses to 1.30% of the Fund's average daily net assets.
/11/ Van Eck Associates Corporation (the "Advisor") waived its management fees
and assumed certain expenses for the period January 1, 1998 to February 28,
1998. The Advisor also assumed expenses exceeding 1.00% of the Fund's average
daily net assets for the period March 1,1998 to December 31, 1998. The Fund's
expenses were also reduced by a fee arrangement based on cash balances left on
deposit with the custodian and a directed brokerage arrangement where the fund
directs certain portfolio trades to a broker that, in turn, pays a portion of
the Fund's expenses. Due to this arrangement the actual expenses incurred were
"Investment Management Fees" of 0.00%, "Other Expenses" of 0.89% and "Total
Portfolio Expenses" of 0.89%.
VARIABLE DIVISION
If you invest in the variable investment options, depending on market
conditions, you may make or lose money. These variable investment options are
described in the prospectuses for the underlying investment portfolios. SEE
OBJECTIVES OF THE INVESTMENT PORTFOLIOS, PAGE 12.
POLICY VALUES
Your account value is the amount you have in the guaranteed interest division,
plus the amount you
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have in each variable investment option. If you have an outstanding policy loan,
your account value includes the amount in the loan division. The loan division
is part of our general account specifically designed to hold money used as
collateral for loans and loan interest. The general account contains all of our
assets other than those held in the separate account, or our other separate
accounts.
Your account value reflects:
o net premiums;
o deductions for charges;
o the investment performance of the amounts you have in the variable
investment options;
o interest earned on the amount you have in the guaranteed interest
division;
o interest earned on the amount you have in the loan division; and
o partial withdrawals.
We subtract charges and partial withdrawals you take from your account value.
You make a partial withdrawal when you withdraw part of your net account value.
Partial withdrawals may reduce the amount of base death benefit.
Your net account value is equal to the account value minus the amount of your
outstanding policy loans and accrued loan interest, if any. Your surrender value
is the same as your net account value.
YOUR ACCOUNT VALUE IN THE VARIABLE DIVISION
Accumulation units are the way we measure value in the variable division.
Accumulation unit value is the value of a unit of a variable investment option
on the valuation date. Each variable investment option has a different
accumulation unit value. SEE DETERMINING THE VALUE IN THE VARIABLE DIVISION,
PAGE 27.
On each valuation date, we determine the accumulation unit values. The
accumulation unit value for each variable investment option reflects the
investment performance of the underlying investment portfolio during the
valuation period. Each accumulation unit value reflects asset-based charges
under the policy, and the expenses of the investment portfolios. SEE DETERMINING
THE VALUE IN THE VARIABLE DIVISION, PAGE 27 AND HOW WE CALCULATE ACCUMULATION
UNIT VALUES FOR EACH DIVISION, PAGE 27.
TRANSFERS OF ACCOUNT VALUE
You may make up to twelve free transfers among the variable investment options
or to the guaranteed interest division per policy year. We may charge $10 for
each transfer over twelve you make in a policy year. This charge does not apply
to automatic rebalancing or dollar cost averaging transfers. There are
restrictions on transfers from the guaranteed interest division. SEE TRANSFERS
OF ACCOUNT VALUE, PAGE 28.
SPECIAL POLICY FEATURES
DESIGNATED DEDUCTION OPTION
You may designate one deduction investment option from which we will take your
monthly deductions and your deferred sales charge. SEE DESIGNATED DEDUCTION
OPTION, PAGE 25.
DOLLAR COST AVERAGING
Dollar cost averaging is a systematic plan of transferring account values to
selected variable investment options. It is intended to protect your policy's
value from short-term price fluctuations. However, dollar cost averaging does
not assure a profit, nor does it protect against a loss in a declining market.
Dollar cost averaging is free. SEE DOLLAR COST AVERAGING, PAGE 28.
AUTOMATIC REBALANCING
Automatic rebalancing periodically reallocates your net account value among the
investment options to maintain your specified distribution of account value
among those investment options. Automatic rebalancing is free. SEE AUTOMATIC
REBALANCING, PAGE 29.
LOANS
You may take loans against your policy's net account value. We charge an annual
loan interest rate of 3.25%. We credit an annual interest rate of 3% on amounts
held in the loan division as collateral for your loan. SEE POLICY LOANS, PAGE
30.
PARTIAL WITHDRAWALS
You may withdraw part of your net account value any time after your first policy
year. You may make only one partial withdrawal per policy year. Partial
withdrawals may reduce the death benefit and will
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reduce your account value. SEE PARTIAL WITHDRAWALS, PAGE 31.
POLICY MODIFICATION, TERMINATION AND CONTINUATION FEATURES
RIGHT TO EXCHANGE POLICY
For 24 months after the policy date you can exchange your policy for a
guaranteed policy, unless state law requires differently. The right to exchange
your policy is free. SEE RIGHT TO EXCHANGE POLICY, PAGE 26.
SURRENDER
You may surrender your policy at any time while the insured person is living.
We calculate your surrender value on the valuation date we receive your request
and policy at our customer service center. All insurance coverage ends on the
date we receive your request. You must return your policy or a lost policy form
to us. SEE SURRENDER, PAGE 33.
LAPSE
In general, insurance coverage continues as long as your policy's net account
value is enough to pay the monthly deductions. SEE LAPSE, PAGE 32.
REINSTATEMENT
You may reinstate your policy and its riders within five years of its lapse if
you still own the policy and the insured person is still living.
You will need to give proof that the insured person continues to be insurable.
You will also need to pay required reinstatement premiums.
If you had a policy loan existing when coverage ended, we will reinstate it with
accrued loan interest to the date of the lapse. SEE REINSTATEMENT, PAGE 33.
POLICY MATURITY
If the insured person is still living on the maturity date or the policy
anniversary nearest the date when the insured person reaches age 100 and you do
not choose continuation of coverage, you must surrender your policy and we will
pay the net account value. Your policy then ends. SEE POLICY MATURITY, PAGE 26.
CONTINUATION OF COVERAGE
If the insured person is still living at age 100, you may either surrender your
policy or choose the continuation of coverage feature. If the continuation of
coverage feature becomes effective, we will deduct a one-time administrative fee
of $200 and keep your policy in force. SEE CONTINUATION OF COVERAGE, PAGE 26.
DEATH BENEFITS
At the insured person's death, we pay death proceeds to the beneficiary(ies) if
your policy is still in force. The beneficiary(ies) is(are) the person or people
you name to receive the death proceeds. The death proceeds equal the base death
benefit plus amounts payable by rider, minus the amount of any outstanding
policy loan on your policy and accrued loan interest. Based on the death benefit
option you have chosen, the base death benefit varies.
The base death benefit does not include any adjustable term insurance rider you
may have on your policy. The target death benefit includes any adjustable term
insurance rider you may have on your policy plus your base death benefit. The
total death benefit is at least equal to or greater than your target death
benefit.
There is no minimum stated death benefit to issue a policy. Generally, there is
a minimum target death benefit of $50,000 per policy. SEE DEATH BENEFITS, PAGE
20.
You may change your stated death benefit amount while your policy is in force,
subject to certain restrictions. SEE CHANGES IN DEATH BENEFIT AMOUNTS, PAGE 23.
TAX CONSIDERATIONS
Under current federal income tax law, death benefits of life insurance policies
generally are not subject to income tax. In order for this treatment to apply,
the policy must qualify as a life insurance contract. We believe it is
reasonable to conclude that the policy will qualify as a life insurance
contract. SEE TAX STATUS OF THE POLICY, PAGE 44.
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Assuming the policy qualifies as a life insurance contract, under current
federal income tax law, your account value earnings are generally not subject to
income tax as long as they remain within your policy. However depending on
circumstances, the following events may cause taxable consequences for you:
o partial withdrawals;
o surrender; or
o lapse.
In addition to the events listed above, if your policy is a modified endowment
contract, a loan against or secured by the policy may cause income taxation. A
penalty tax may be imposed on a distribution from a modified endowment contract
as well. SEE MODIFIED ENDOWMENT CONTRACTS, PAGE 45.
In recent years, Congress has adopted new rules relating to life insurance owned
by businesses. Any business contemplating the purchase of a new policy or a
change in an existing policy should consult a tax adviser.
You should consult a qualified legal or tax adviser before you purchase your
policy.
INFORMATION ABOUT SECURITY LIFE, THE SEPARATE ACCOUNT AND THE INVESTMENT OPTIONS
SECURITY LIFE OF DENVER INSURANCE COMPANY
Security Life of Denver Insurance Company ("Security Life") is a stock life
insurance company organized under the laws of the State of Colorado in 1929. Our
headquarters are located at 1290 Broadway, Denver, Colorado 80203-5699. We are
admitted to do business in the District of Columbia and all states except New
York. At the close of 1998, the company and its consolidated subsidiaries had
over $174.3 billion of life insurance in force. As of December 31, 1998, our
total assets were over $10.0 billion, and our shareholder's equity was over $926
million.
We have a complete line of life insurance products, including:
o annuities;
o individual life;
o group life;
o pension products; and
o market life reinsurance.
Security Life is a wholly owned indirect subsidiary of ING Groep, N.V. ("ING").
ING is one of the world's three largest diversified financial services
organizations. ING is headquartered in Amsterdam, The Netherlands. It has
consolidated assets over $461.8 billion on a Dutch (modified U.S.) generally
accepted accounting principles basis, as of December 31, 1998.
The principal underwriter and distributor for our policies is ING America
Equities, Inc. ING America Equities is a stock corporation organized under the
laws of the State of Colorado in 1993. It is a wholly owned subsidiary of
Security Life and is a registered broker-dealer with the SEC and the NASD. ING
America Equities, Inc. is located at 1290 Broadway, Denver, Colorado 80203-5699.
SECURITY LIFE SEPARATE ACCOUNT L1
SEPARATE ACCOUNT STRUCTURE
We established Security Life Separate Account L1 (the "separate account") on
November 3, 1993, under Colorado's insurance law. It is a unit investment trust,
registered with the SEC under the Investment Company Act of 1940. The SEC does
not supervise our management of the separate account or Security Life.
The separate account is a separate investment account. We keep the separate
account assets separate from our general account and other separate accounts. It
is used to support our variable life insurance policies and for other purposes
allowed by law and regulation. We may offer other variable life insurance
contracts with different benefits and charges that invest in the separate
account. We do not discuss these contracts in this prospectus. The separate
account may invest in other securities not available for the policy described in
this prospectus. The general account contains all of our assets other than those
held in the separate account or other separate accounts.
The company owns all the assets in the separate account. We credit gains to or
charge losses against the separate account without regard to performance
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Corporate Benefits 11
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of other investment accounts.
ORDER OF SEPARATE ACCOUNT LIABILITIES
State law provides that we may not charge general account liabilities against
separate account assets equal to its reserves and other liabilities. This means
that in the event we were ever to become insolvent, the separate account assets
will be used first to pay separate account policy claims. Only if assets remain
in the separate account after these claims have been satisfied can these assets
be used to pay other policy owners and our creditors.
The separate account may have liabilities from assets credited to other variable
life policies offered by the separate account. If the assets of the separate
account are greater than required reserves and policy liabilities, we may
transfer the excess to our general account.
INVESTMENT OPTIONS
Investment options include the variable and the guaranteed interest divisions,
but not the loan division. The separate account has several variable investment
options. Each variable investment option invests in shares of a matching
investment portfolio. Each investment portfolio has its own investment
objective. This means that the investment performance of a policy depends on the
performance of the investment portfolios you choose. These investment portfolios
are not available directly to individual investors. They are available only as
the underlying investments for variable annuity and variable life insurance
contracts and certain pension accounts.
INVESTMENT PORTFOLIOS
Each of the investment portfolios is a separate series of an open-end management
investment company. The investment company receives investment advice from a
registered investment adviser who, other than the GCG Trust, is not associated
with us.
Currently, some variable investment options invest in a portfolio of the GCG
Trust. Directed Services, Inc. ("DSI") serves as the manager to each portfolio
of the GCG Trust. The GCG Trust and DSI have retained several portfolio managers
to manage the assets of each portfolio of the GCG Trust.
The investment portfolios sell shares to separate accounts of insurance
companies. These insurance companies may or may not be affiliated with us. This
is known as "shared funding." Investment portfolios may sell shares as the
underlying investment for both variable annuity and variable life insurance
contracts. This process is known as "mixed funding."
The investment portfolios may sell shares to certain qualified pension and
retirement plans that qualify under Section 401 of the Internal Revenue Code
("IRC"). As a result, a material conflict of interest may arise between
insurance companies, owners of different types of contracts and retirement
plans, or their participants.
If there is a material conflict, we will consider what should be done, including
removing the investment portfolio from the separate account. There are certain
risks with mixed and shared funding, and with selling shares to qualified
pension and retirement plans. See the investment portfolios' prospectuses.
INVESTMENT PORTFOLIO OBJECTIVES
Each investment portfolio has a different investment objective that it tries to
achieve by following its own investment strategy. The objectives and policies of
each investment portfolio affect its return and its risks. With this prospectus,
you must receive the current prospectus for each investment portfolio. We
summarize the investment objectives for each investment portfolio here. You
should read each investment portfolio prospectus.
Certain investment portfolios offered under this policy have investment
objectives and policies similar to other funds managed by the portfolio's
investment adviser. The investment results of a portfolio may be higher or lower
than those of other funds managed by the same adviser. There is no assurance,
and no representation is made, that the investment results of any investment
portfolio will be comparable to those of another fund managed by the same
investment adviser.
Some investment portfolio advisers (or their affiliates) may pay us compensation
for servicing, administration or other expenses. Currently, these advisers
include AIM Advisors, Inc.; Fidelity Management & Research Company; Fred Alger
Management, Inc.; Directed Services, Inc.; INVESCO Funds Group, Inc.; Neuberger
Berman Management, Inc. and Van Eck Associates
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Corporation. The amount of compensation is usually based on the aggregate assets
of the investment portfolio from contracts that we issue or administer. Some
advisers may pay us more than others.
AIM VARIABLE INSURANCE FUNDS, INC.
AIM Variable Insurance Funds, Inc. is a registered, open-end, series, management
investment company. A I M Advisors, Inc., ("AIM") serves as each fund's
investment adviser. AIM has acted as an investment adviser since its
organization in 1976. Today, AIM, together with its subsidiaries, advises or
manages over 110 investment portfolios encompassing a broad range of investment
objectives.
AIM V.I. Capital Appreciation Fund -- seeks growth of capital through
investment in common stocks, with emphasis on medium- and small-sized
growth companies.
AIM V.I. Government Securities Fund -- seeks to achieve high current income
consistent with reasonable concern for safety of principal by investing in
debt securities issued, guaranteed or otherwise backed by the United States
Government.
THE ALGER AMERICAN FUND
The Alger American Fund is a registered investment company organized on April 6,
1988. It is a multi- series Massachusetts business trust. The Fund's investment
manager is Fred Alger Management, Inc., which has provided investment advisory
services since 1964.
Alger American Growth Portfolio -- seeks long-term capital appreciation.
The portfolio focuses on growing companies that generally have broad
product lines, markets, financial resources and depth of management. Under
normal circumstances, the portfolio invests primarily in equity securities
of large companies. The portfolio considers a large company to have a
market capitalization of $1 billion or greater.
Alger American MidCap Growth Portfolio -- seeks long-term capital appreciation.
The portfolio focuses on midsize companies with promising growth potential.
Under normal circumstances, the portfolio invests primarily in equity
securities of companies having a market capitalization within the range of
companies in the S&P(R) MidCap 400 Index.
Alger American Small Capitalization Portfolio -- seeks long-term capital
appreciation.
The portfolio focuses on small, fast-growing companies that offer
innovative products, services or technologies to a rapidly expanding
marketplace. Under normal circumstances, the portfolio invests primarily in
equity securities of small capitalization companies. A small capitalization
company is one that has a market capitalization within the range of the
Russell(R) 2000 Growth Index or the S&P(R) SmallCap 600 Index.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND AND VARIABLE INSURANCE PRODUCTS FUND
II
Fidelity Variable Insurance Products Fund ("VIP" established November 13, 1981)
and Variable Insurance Products Fund II ("VIP II" established March 21, 1988)
are open-end, diversified, management investment companies. These funds are
organized as Massachusetts business trusts.
Fidelity Management & Research Company ("FMR") manages and provides investment
and other services to the funds named here. However, Bankers Trust Company also
provides sub-advisory services for VIP II Index 500 Portfolio. FMR is the
management arm of Fidelity Investments(R), which was established in 1946, and is
one of America's largest mutual fund managers.
VIP Growth Portfolio -- seeks capital appreciation.
FMR's principal investment strategies include:
o Investing primarily in common stocks.
o Investing in companies that it believes have above-average growth
potential (stocks of these companies are often called "growth"
stocks).
o Investing in domestic and foreign issuers.
o Using fundamental analysis of each issuer's financial condition
and industry position and market and economic conditions to select
investments.
VIP Overseas Portfolio -- seeks long-term growth of capital.
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FMR's principal investment strategies include:
o Investing at least 65% of total assets in foreign securities.
o Investing primarily in common stocks.
o Allocating investments across countries and regions considering
the size of the market in each country and region relative to the
size of the international market as a whole.
o Using fundamental analysis of each issuer's financial condition
and industry position and market and economic conditions to select
investments.
VIP II Index 500 Portfolio -- seeks investment results that correspond to the
total return of common stocks publicly traded in the United States as
represented by the S&P(R) 500.
Bankers Trust Company (BT)'s principal investment strategies include:
o Investing at least 80% of assets in common stocks included in the
S&P(R) 500.
o Lending securities to earn income for the fund.
GCG TRUST
The GCG Trust is an open-end management investment company whose shares are
available to separate accounts funding variable insurance contracts offered by
the company's affiliates, Golden American Life Insurance Company, First Golden
Life Insurance Company of New York and Equitable Life Insurance Company of Iowa.
The GCG Trust also sells its shares to separate accounts of other insurance
companies not affiliated with Security Life. Pending Securities and Exchange
Commission approval, shares of the GCG Trust may also be sold to certain
qualified pension and retirement plans.
Currently, some variable investment options invest in a portfolio of the GCG
Trust. Directed Services, Inc. ("DSI"), an affiliate, serves as the manager to
each portfolio of the GCG Trust. The GCG Trust and DSI have retained several
portfolio managers to manage the assets of each portfolio of the GCG Trust. DSI
also serves as the distributor to the GCG Trust.
The following variable investment options invest in designated portfolios of the
GCG Trust:
Equity Income Portfolio -- seeks substantial dividend income as well as
long-term growth of capital. Invests primarily in common stocks of
well-established companies paying above-average dividends. Sub-advised by
T. Rowe Price Associates, Inc.
Growth Portfolio -- seeks capital appreciation. Invests primarily in common
stocks of growth companies that have favorable relationships between
price/earnings ratios and growth rates in sectors offering the potential
for above-average returns. Sub-advised by Janus Capital Corporation.
Hard Assets Portfolio -- seeks long-term capital appreciation. Invests primarily
in hard asset securities. Hard asset companies produce a commodity which
the portfolio manager is able to price on a daily or weekly basis.
Sub-advised by Baring International Investment Limited (an affiliate).
Limited Maturity Bond Portfolio -- seeks highest current income consistent with
low risk to principal and liquidity. Also seeks to enhance its total return
through capital appreciation when market factors, such as falling interest
rates and rising bond prices, indicate that capital appreciation may be
available without significant risk to principal. Invests primarily in
diversified limited maturity debt securities with average maturity dates of
five years or shorter and in no cases more than seven years. Sub-advised by
ING Investment Management, LLC (an affiliate).
Liquid Asset Portfolio -- seeks high level of current income consistent with the
preservation of capital and liquidity. Invests primarily in obligations of
the U.S. Government and its agencies and instrumentalities, bank
obligations, commercial paper and short-term corporate debt securities. All
securities will mature in less than one year. Sub-advised by ING Investment
Management, LLC (an affiliate).
Mid-Cap Growth Portfolio -- seeks long-term growth of capital. Invests primarily
in equity securities of companies with medium market capitalization which
the portfolio manager believes have above-average growth potential.
Sub-advised by Massachusetts Financial Services Company.
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Research Portfolio -- seeks long-term growth of capital and future income.
Invests primarily in common stocks or securities convertible into common
stocks of companies believed to have better than average prospects for
long-term growth. Sub-advised by Massachusetts Financial Services Company.
Total Return Portfolio -- seeks above-average income (compared to a portfolio
entirely invested in equity securities) consistent with the prudent
employment of capital. Invests primarily in a combination of equity and
fixed income securities. Sub-advised by Massachusetts Financial Services
Company.
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO Variable Investment Funds, Inc. is a registered, open-end management
investment company. It was organized as a Maryland corporation on August 19,
1993. It is currently made up of ten diversified investment portfolios. Five of
these investment portfolios are described here.
INVESCO Funds Group, Inc. is the Funds' investment adviser. As the adviser, it
is mostly responsible for providing the portfolios with investment management,
various administrative services, and supervising the Fund's daily business
affairs.
INVESCO Capital Management, Inc. sub-advises the Total Return Fund. "VIF" refers
to INVESCO Variable Investment Fund. INVESCO Distributors, Inc. ("IDI"),
provides distribution services for the INVESCO Variable Investment Funds, Inc.
INVESCO VIF-Equity Income Fund (Formerly, INVESCO VIF-Industrial Income
Portfolio) -- seeks high current income, with growth of capital as a
secondary objective.
The fund normally invests at least 65% of its assets in dividend-paying
common and preferred stocks, although in recent years that percentage has
been somewhat higher. Stocks held by the fund generally are expected to
produce a relatively high level of income and a consistent, stable return.
Although it focuses on the stocks of larger companies with a strong record
of paying dividends, the fund also may invest in companies that have not
paid regular dividends. The fund's equity investments are limited to stocks
that can be traded easily in the United States; it may, however, invest in
foreign securities in the form of American Depository Receipts (ADRs).
The rest of the fund's assets are invested in debt securities, generally
corporate bonds that are rated investment grade or better. The fund also
may invest up to 15% of its assets in lower-grade debt securities commonly
known as "junk bonds", which generally offer higher interest rates, but are
riskier investments than investment grade securities.
INVESCO VIF-High Yield Fund -- seeks to provide a high level of current income.
It invests substantially all of its assets in lower-rated debt securities,
commonly called "junk bonds," and preferred stock, including securities
issued by foreign companies. Although these securities carry with them
higher risks, they generally provide higher yields--and therefore higher
income--than higher-rated debt securities.
INVESCO VIF-Small Company Growth Fund -- seeks investment growth over the long
term.
The fund normally invests at least 80% of its assets in equity securities
of companies with market capitalizations of $1 billion or less. INVESCO
uses a bottom-up investment approach to the fund's investment portfolio,
focusing on companies that are in the developing stages of their life
cycles. Using this approach, INVESCO tries to identify companies that it
believes are undervalued in the marketplace, have earnings which may be
expected to grow faster than the U.S. economy in general, and/or offer the
potential for accelerated earnings growth due to rapid growth of sales, new
products, management changes, or structural changes in the economy. The
prices of securities issued by these small companies tend to rise and fall
more rapidly than those of more established companies.
The remainder of the fund's assets can be invested in a wide range of
securities that may or may not be issued by small companies. In addition to
equity securities, the fund can invest in foreign securities and debt
securities, including so-called "junk bonds."
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NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
Neuberger Berman Advisers Management Trust (the "Trust,") is a registered,
open-end management investment company. It was organized as a Delaware business
trust on May 23, 1994. The Trust is made up of separate portfolios
("Portfolios"), each of which invests all of its net investable assets in a
matching series ("Series") of Advisers Managers Trust ("Managers Trust").
Managers Trust is a diversified, open-end management investment company
organized as a New York common law trust on May 24, 1994.
This master feeder structure is different from that of many other investment
companies which directly purchase and manage their own securities portfolios.
Neuberger Berman Management Incorporated acts as investment manager to Managers
Trust. Neuberger Berman, LLC is the sub-adviser.
The investments for the Portfolio are managed by the same portfolio manager(s)
who manage one or more other mutual funds that have similar names, investment
objectives and investment styles as the Portfolio. You should be aware that the
Portfolio is likely to differ from the other mutual funds in size, cash flow
pattern and tax matters. Accordingly, the holdings and performance of the
Portfolio can be expected to vary from those of the other mutual funds.
Shares of the separate Portfolios of Neuberger Berman Advisers Management Trust
are sold only through the currently effective prospectus and are not available
to the general public. Shares of the AMT Portfolios may be purchased only by
life insurance companies to be used with their separate accounts which fund
variable annuity and variable life insurance policies.
Neuberger Berman Partners Portfolio -- seeks growth of capital. The Portfolio
invests mainly in common stocks of mid-to large-capitalization companies.
Its investment program seeks securities believed to be undervalued based on
strong fundamentals, including low price to earnings ratio, consistent cash
flow, and the company's track record through all points of the market
cycle.
VAN ECK WORLDWIDE INSURANCE TRUST
Van Eck Worldwide Insurance Trust is an open-end management investment company
organized as a business trust under the laws of the Commonwealth of
Massachusetts on January 7, 1987. On April 12, 1995, Van Eck Investment Trust
changed its name to Van Eck Worldwide Insurance Trust. Van Eck Associates
Corporation serves as investment adviser and manager to the funds.
Van Eck Worldwide Bond Fund -- seeks high total return--income plus capital
appreciation--by investing globally, primarily in a variety of debt
securities.
Van Eck Worldwide Emerging Markets Fund -- seeks long term capital appreciation
by investing in equity securities in emerging markets around the world.
Van Eck Worldwide Real Estate Fund -- seeks high total return by investing in
equity securities of companies that own significant real estate or
principally do business in real estate.
THE GUARANTEED INTEREST DIVISION
You may allocate all or a part of the net premium and transfers of your net
account value into the guaranteed interest division. The guaranteed interest
division is part of our general account which guarantees principal. It pays
interest at a fixed rate that we declare.
The general account supports our non-variable insurance and annuity obligations.
We have not registered interests in the guaranteed interest division under the
Securities Act of 1933. Also, we have not registered the guaranteed interest
division or the general account as an investment company under the Investment
Company Act of 1940 (because of exemptive and exclusionary provisions). This
means that the general account, the guaranteed interest division and its
interests are generally not subject to regulation under these Acts.
The SEC staff has not reviewed the disclosures included in this prospectus
relating to the general account and the guaranteed interest division. These
disclosures, however, may be subject to certain requirements of the federal
securities law regarding accuracy and completeness of statements made in this
prospectus.
The amount you have in the guaranteed interest division is the sum of net
premium you allocate to
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Corporate Benefits 16
<PAGE>
that division, plus transfers you made to the guaranteed interest division, plus
interest earned.
Amounts you transfer out of or withdraw from the guaranteed interest division
reduce this amount. It is also reduced by deductions for charges from your
account value allocated to the guaranteed interest division.
We declare the interest rate that applies to all amounts in the guaranteed
interest division. These interest rates are never less than the minimum
guaranteed interest rate of 3% and will be in effect for periods of at least
twelve months. Interest compounds daily at an effective annual rate that equals
the declared rate. We credit interest to the guaranteed interest division on a
daily basis. We pay interest regardless of the actual investment performance of
our account. We bear all of the investment risk for the guaranteed interest
division.
MAXIMUM NUMBER OF INVESTMENT OPTIONS
You may invest in a total of eighteen investment options over the lifetime of
your policy. Investment options include the variable and the guaranteed interest
divisions, but not the loan division.
As an example, if you have had funds in seventeen variable investment options
and the guaranteed interest division (or eighteen variable investment options),
these are the only investment options to which you may later add or transfer
funds. You may want to use fewer investment options in the early years of your
policy, so that you can invest in other investment options in the future. If you
invest in eighteen variable investment options, you will not be able to invest
in the guaranteed interest division.
DETAILED INFORMATION ABOUT THE POLICY
This prospectus describes our standard Corporate Benefits variable universal
life insurance policy. There may be differences in the policy because of state
requirements where we issue your policy. We will describe any such differences
in your policy.
The illustrations beginning on page 50 show how the policies work.
APPLYING FOR A POLICY
You purchase this variable universal life policy by submitting an application to
us. On the policy date, the insured person must be no less than 15 years of age
and no older than age 85. The insured person is the person on whose life we
issue a policy and upon whose death we pay death proceeds. SEE AGE, PAGE 34.
We may back-date the policy up to six months to allow the insured person to give
proof of a younger age for the purposes of your policy.
This policy is available only to groups of ten or more insured people.
Generally, we require a minimum total group first year premium of at least
$250,000. However depending on underwriting circumstances, we may reduce the
minimum total group first year premium in some cases.
We generally require a minimum target death benefit of $50,000 per policy. We
may reduce the minimum target death benefit so long as the average target death
benefit at policy issuance for the group or sponsored arrangement is at least
$50,000. Our underwriting and reinsurance procedures in effect at the time you
apply limit the maximum stated and target death benefit.
POLICY ISSUANCE
Before we issue a policy or apply your net premium to your policy, we require
satisfactory evidence of insurability of the insured person and payment of your
initial premium. This evidence may include completion of all underwriting and
issue requirements.
The investment date is the first date we apply net premium we have received to
your policy. Your initial premium is the premium we must receive before coverage
can begin. The initial premium is the first premium we receive and apply to your
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Corporate Benefits 17
<PAGE>
policy. It must be equal to at least the sum of the scheduled premiums which are
due from your policy date through your investment date. If we receive your
initial premium after we approve your policy for issue and the issue
requirements have been met, the investment date is the date we receive your
initial premium.
The policy date as shown on your policy schedule determines:
o monthly processing dates;
o policy months;
o policy years; and
o policy anniversaries.
It is not affected by the date you receive the policy. The policy date may be
different from the date we receive your first premium payment. If the policy
date is earlier, we charge monthly deductions from the policy date. The policy
date is determined one of three ways:
1. the date you designate on your application, subject to our approval; or
2. the back-date of the policy to save age, subject to our approval and
state law.
3. If there is no designated date or back-date,
the policy date is:
o the date all underwriting and administrative requirements have
been met if we have received your initial premium before we issue
your policy; or
o the date we receive your initial premium if we receive your
initial premium after we approve your policy for issue.
DEFINITION OF LIFE INSURANCE
The federal income tax definition of life insurance is the cash value
accumulation test. SEE TAX STATUS OF THE POLICY, PAGE 44.
TEMPORARY INSURANCE
If you apply and qualify, we may issue temporary insurance in an amount equal to
the face amount of insurance for which you applied. The maximum amount of
temporary insurance for binding limited life insurance coverage is $3 million,
which includes any in force coverage with us. This temporary insurance is in
force as long as all requirements are met.
Temporary coverage begins when:
1. you have completed and signed our binding limited life insurance
coverage form;
2. we receive and accept a premium payment of at least your scheduled
premium (selected on your application); and
3. part I of the application is completed.
Temporary coverage ends on the earliest of:
o the date we return your premium payments;
o five days after we mail notice of termination to the address on your
application;
o the date your policy coverage starts;
o the date we refuse to issue you a policy based on your application; or
o 90 days after you sign our binding limited life insurance coverage
form.
There is no death benefit under the temporary insurance agreement if:
o there is a material misrepresentation in your answers on the binding
limited life insurance coverage form;
o there is a material misrepresentation in statements on your
application;
o the person or persons intended to be the insured people die by suicide
or self- inflicted injury; or
o the bank does not honor your premium check.
PREMIUMS
You may choose the amount and frequency of premium payments, within limits.
SCHEDULED PREMIUMS
Your premiums are flexible. You may select your scheduled (planned) premium
(within our limits) when you apply for your policy. The scheduled premium, shown
in your policy and schedule, is the amount you choose to pay over a stated time
period. THIS AMOUNT MAY OR MAY NOT BE ENOUGH TO KEEP YOUR POLICY IN FORCE. You
may receive premium reminder notices for the scheduled premium on a monthly,
quarterly, semiannual or annual basis. You are not required to pay the scheduled
premium.
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Corporate Benefits 18
<PAGE>
Alternatively, you may choose to pay your premium by electronic funds transfer
each month. This option is not available for your initial premium. The financial
institution that makes your electronic funds transfer may charge for this
service.
You can change the amount of your scheduled premium within our minimum and
maximum limits at any time. If you fail to pay your scheduled premium or if you
change the amount of your scheduled premium, your policy performance will be
affected.
UNSCHEDULED PREMIUM PAYMENTS
Generally speaking, you may make unscheduled premium payments at any time,
however:
1. We may limit the amount of your unscheduled premium payments that would
result in an increase in the base death benefit amount required by the
federal income tax law definition of life insurance. We may require
satisfactory evidence that the insured person is insurable at the time
that you make the unscheduled premium payment if the death benefit is
increased due to your unscheduled premium payments;
2. We may require proof that the insured person is insurable if your
unscheduled premium payment will cause the net amount at risk to
increase; and
3. We will return premium payments which are greater than the "seven-pay"
limit for your policy if your payment would cause your policy to become
a modified endowment contract, unless you have acknowledged in writing
the new modified endowment contract status for your policy.
SEE MODIFIED ENDOWMENT CONTRACTS, PAGE 45 AND CHANGES TO COMPLY WITH THE LAW,
PAGE 46.
If you have an outstanding policy loan and you make an unscheduled payment, we
will consider this payment a loan repayment, unless you tell us otherwise. If
your payment is a loan repayment, we do not take out tax or sales charges.
TARGET PREMIUM
Target premiums are not based on your scheduled premium. Target premiums are
actuarially determined using the age, sex and premium class of the insured
person.
In general, the target premium is higher for men than women. It generally is
lower for younger insured people than for older people. It is directly related
to the stated death benefit at issue. The target premium is used in determining
the sale charge, deferred sales charge and commissions. You are not required to
pay the target premium. If you pay less, the amount may or may not be enough to
keep your policy in force. The target premium for your policy and any segments
added since the policy date are listed in the schedule we will provide to you.
SEE PREMIUMS, PAGE 18.
ALLOCATION OF NET PREMIUMS
The net premium is the balance remaining after we take tax and sales charges
(excluding the deferred sales charge) from your premium payment. We add the net
premium to your account value according to your instructions.
We apply the initial net premium to your policy after:
a) we receive the amount of premium required for your insurance coverage
to begin;
b) all issue requirements have been met and received by our customer
service center;
c) we approve your policy application; and
d) we approve your policy for issue.
All amounts you designated for the guaranteed interest division will be
allocated to that division on the investment date. If your state requires return
of your premium during the free look period, we invest amounts you have
designated for the variable division in the GCG Trust Liquid Asset Portfolio for
a period ending on the earlier of your state's free look period plus:
o five days from mailing (deemed delivery time); or
o the date the policy was delivered to you, so long as we receive notice
of the delivery date on our delivery receipt at our Customer Service
Center before the end of the deemed delivery time plus free look
period.
At the end of this time period, we will allocate that amount among your chosen
variable investment options, based on your most recent premium allocation
instructions. If your state provides for return of account value during the free
look period or no free look period, we invest amounts you designated for the
variable division directly into your selected variable investment options.
We allocate premium payments received after we apply your initial net premium
payment to your policy on the valuation date of receipt. We always use your most
recent premium allocation instructions. Your instructions must specify
percentages that are
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Corporate Benefits 19
<PAGE>
whole numbers totaling 100%.
You may invest in a maximum of eighteen investment options over the lifetime of
your policy. SEE MAXIMUM NUMBER OF INVESTMENT DIVISIONS, PAGE 17.
You may make five free premium allocation changes per year. After the five free
premium allocation changes, we charge you $25 for each additional allocation
change per policy year. The $25 fee is withdrawn from each investment option pro
rata to the amount in each option. If you change your designated deduction
option from which monthly deductions and the deferred sales charge are deducted,
we consider this a premium allocation change for which there may be a charge.
SEE DESIGNATED DEDUCTION OPTION, PAGE 25 AND POLICY TRANSACTION FEES, PAGE 42.
PREMIUM PAYMENTS AFFECT YOUR COVERAGE
Your coverage lasts only as long as your net account value is enough to pay the
monthly and annual charges and your account value is more than your outstanding
policy loan plus accrued loan interest. If these conditions are no longer met,
your policy will enter the 61-day grace period and you must make a premium
payment to avoid lapse. SEE LAPSE, PAGE 32, AND GRACE PERIOD, PAGE 32.
MODIFIED ENDOWMENT CONTRACTS
There are special federal income tax rules for distributions from certain life
insurance policies known as "modified endowment contracts." These rules apply to
distributions such as policy loans, surrenders, and partial withdrawals.
Whether or not these rules apply depends upon whether or not the premiums we
receive are greater than the "seven-pay" limit. SEE MODIFIED ENDOWMENT
CONTRACTS, PAGE 45.
If we find that your scheduled premium causes your policy to be a modified
endowment contract on your policy date, we will require you to acknowledge that
you know the policy is a modified endowment contract. We will issue your policy
based on the scheduled premium you selected. If you do not want your policy to
be issued as a modified endowment contract, you may reduce your scheduled
premium to a level which does not cause your policy to be a modified endowment
contract. We will then issue your policy based on the revised scheduled premium.
DEATH BENEFITS
You can decide the amount of insurance you need, now and in the future. You can
combine the long-term advantages of permanent life insurance base coverage with
the flexibility and short-term advantages of term life insurance. Both permanent
and term life insurance are available under your one policy.
When we issue your policy, we base the initial insurance coverage on the
instructions in your application.
Death benefits are valued as of the date of death of the insured person. The
stated death benefit is the permanent element of your policy. The adjustable
term insurance rider is the term insurance element of your policy.
The adjustable term insurance rider acts as a bridge. It provides term insurance
coverage which automatically adjusts to fill the gap between your total death
benefit and your base death benefit depending on which death benefit option you
choose. Generally, your target death benefit may be no less than $50,000 to
issue your policy. There is no minimum required stated death benefit
It may be to your economic advantage to include part of your insurance coverage
under the adjustable term insurance rider. Both the cost of insurance under the
adjustable term insurance rider and the cost of insurance for the base death
benefit are deducted monthly from your account value and generally increase with
the age of the insured person. Use of the adjustable term insurance rider may
reduce sales compensation. SEE ADJUSTABLE TERM INSURANCE RIDER, PAGE 24.
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Corporate Benefits 20
<PAGE>
DEATH BENEFIT SUMMARY
THIS CHART ASSUMES NO DEATH BENEFIT OPTION CHANGES, INCREASES OR DECREASES IN
STATED OR TARGET DEATH BENEFIT AND THAT PARTIAL WITHDRAWALS ARE LESS THAN THE
PREMIUM WE RECEIVE.
<TABLE>
<CAPTION>
OPTION 1 OPTION 2 OPTION 3
============== =================================== =================================== ======================================
<S> <C> <C> <C>
STATED The amount of policy death The amount of policy death The amount of policy death
DEATH benefit at issue, not including benefit at issue, not including benefit at issue, not including
BENEFIT rider coverage. This amount rider coverage. This amount rider coverage. This amount
stays level throughout the life of stays level throughout the life of stays level throughout the life of
the contract. the contract. the contract.
BASE DEATH The greater of the stated death The greater of the stated death The greater of the stated death
BENEFIT benefit or the account value benefit plus the account value, benefit plus the sum of all
multiplied by the appropriate or the account value multiplied premiums we receive minus
factor from the definition of life by the appropriate factor from partial withdrawals you have
insurance factors. the definition of life insurance taken, or the account value
factors. multiplied by the appropriate
factor from the definition of life
insurance factors.
TARGET Stated death benefit plus Stated death benefit plus Stated death benefit plus
DEATH adjustable term insurance rider adjustable term insurance rider adjustable term insurance rider
BENEFIT benefit. This amount remains benefit. This amount remains benefit. This amount remains
level throughout the life of the level throughout the life of the level throughout the life of the
policy. policy. policy.
TOTAL DEATH This is the total death proceeds. This is the total death proceeds. This is the total death proceeds.
BENEFIT It is the greater of the target It is the greater of the target It is the greater of the target
death benefit or the base death death benefit plus the account death benefit plus the sum of all
benefit. value, or the base death benefit. premiums we receive minus
partial withdrawals you have
taken, or the base death benefit.
ADJUSTABLE The adjustable term insurance The adjustable term insurance The adjustable term insurance
TERM rider benefit is the total death rider benefit is the total death rider benefit is the total death
INSURANCE benefit minus base death benefit, benefit minus the base death benefit minus the base death
RIDER but it will not be less than zero. benefit, but it will not be less benefit, but it will not be less
BENEFIT If the account value multiplied than zero. If the account value than zero. If the account value
by the death benefit corridor multiplied by the death benefit multiplied by the death benefit
factor is greater than the stated corridor factor is greater than the corridor factor is greater than the
death benefit, the adjustable stated death benefit plus the stated death benefit plus the sum
term insurance benefit will be account value, the adjustable of all premiums we receive
decreased. It will be decreased term insurance rider benefit will minus partial withdrawals you
so that the sum of the base death be decreased. It will be have taken, the adjustable term
benefit and the adjustable term decreased so that the sum of the insurance rider benefit will be
insurance rider benefit is not base death benefit and the decreased. It will be decreased
greater than the target death adjustable term insurance rider so that the sum of the base death
benefit. If the base death benefit benefit is not greater than the benefit and the adjustable term
becomes greater than the target target death benefit plus the insurance rider benefit is not
death benefit, then the adjustable account value. If the base death greater than the target death
term insurance rider benefit is benefit becomes greater than the benefit plus the sum of all
zero. target death benefit plus the premiums we receive minus
account value, then the partial withdrawals you have
adjustable term insurance rider taken. If the base death benefit
benefit is zero. becomes greater than the target
death benefit plus the sum of all
premiums we receive minus partial
withdrawals you have taken, then the
adjustable term insurance rider
benefit is zero.
</TABLE>
BASE DEATH BENEFIT
Your base death benefit can be different from your stated death benefit as a
result of:
o your choice of death benefit option;
o a change in your death benefit option;
o increases to satisfy the federal income tax law definition of life
insurance;
o partial withdrawals;
o increases or decreases in the stated death benefit; or
o a transaction which causes the base death benefit to change.
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Corporate Benefit 21
<PAGE>
As long as your policy is in force, we will pay the death proceeds to your
beneficiary when the insured person dies. The beneficiary(ies) is(are) the
person (people) you name to receive the death proceeds from your policy. The
death proceeds are:
o your base death benefit; plus
o any rider benefits; minus
o your outstanding policy loan with accrued loan interest; minus
o outstanding policy charges due before the insured person's date of
death.
There could be outstanding policy charges if the insured dies while your policy
is in the grace period.
DEATH BENEFIT OPTIONS
You have a choice of three death benefit options: option 1, option 2 or option 3
(described below). You may choose death benefit option 3 only prior to the issue
of your policy. Your choice may result in your having a base death benefit which
is greater than your stated death benefit. You may change your death benefit
option after the policy date and before the continuation of coverage feature
begins. SEE CHANGES IN DEATH BENEFIT OPTIONS, PAGE 22 AND SEE CONTINUATION OF
COVERAGE, PAGE 26.
Under death benefit option 1, your base death benefit is the greater of:
1. your stated death benefit on the date of the insured person's death; or
2. your account value on the date of the insured person's death multiplied
by the appropriate factor from the definition of life insurance factors
shown in Appendix A.
Under death benefit option 2, your base death benefit is the greater of:
1. your stated death benefit plus your account value on the date of the
insured person's death; or
2. your account value on the date of the insured person's death multiplied
by the appropriate factor from the definition of life insurance factors
shown in Appendix A.
Under option 1 positive investment performance is generally reflected in a
reduced net amount at risk. This lowers your policy's total cost of insurance
charges. Option 1 offers insurance coverage that is a set amount with
potentially lower cost of insurance charges over time. Under option 2,
investment performance is reflected in your insurance coverage.
Under death benefit option 3, the base death benefit is the greater of:
1. your stated death benefit plus the sum of all premiums we receive minus
partial withdrawals you have taken under your policy; or
2. your account value on the date of the insured person's death multiplied
by the appropriate factor from the definition of life insurance factors
shown in Appendix A.
Therefore, the base death benefit generally will increase as you pay premiums,
and decrease as you take partial withdrawals. In no event will your base death
benefit be less than your stated death benefit.
Federal income tax law requires that your death benefit be at least as much as
your account value multiplied by a factor defined by law. This factor is based
on:
o the insured person's age; and
o the insured person's gender.
We will adjust your policy to continue to qualify as life insurance under the
federal income tax laws in existence at the time the policy was issued.
If the insured person is 100 years of age or older and the continuation of
coverage feature is in effect, only death benefit option 1 is available.
CHANGES IN DEATH BENEFIT OPTIONS
You may request a change in your death benefit option after the policy date and
before the continuation of coverage feature. A death benefit option change
applies to your entire stated or base death benefit. You may change from death
benefit option 1 to option 2, or from option 2 to option 1. You may also change
from death benefit option 3 to option 1. You may not change from death benefit
option 1 to option 3, or option 2 to option 3, or option 3 to option 2. You may
choose death benefit option 3 only prior to the issue of your policy.
Your death benefit option change is effective on your next monthly processing
date after we accept and approve your requested change, so long as at least
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Corporate Benefits 22
<PAGE>
five days remain before your monthly processing date. If fewer than five days
remain before your monthly processing date, your death benefit option change is
effective on your next monthly processing date.
After we approve your request, we send a new policy schedule page to you. You
should attach it to your policy. We may ask you to return your policy to our
customer service center so that we can note the change in your schedule. A death
benefit option charge applies to your entire stated or base death benefit.
Changing your death benefit option may reduce or increase your target death
benefit, as well as your stated death benefit.
For you to change from death benefit option 1 to option 2, you must provide to
us proof that the insured person is insurable under our normal rules of
underwriting for your policy class.
We may not allow a change to your death benefit option if it reduces the target
death benefit below the minimum we require to issue your policy.
On the effective date of your option change, your stated death benefit is
changed as follows:
Change Change Stated Death Benefit
From To Following Change:
---- -- ----------------
Option 1 Option 2 your stated death benefit before the change minus your
account value as of the effective date of the change.
Option 2 Option 1 your stated death benefit before the change plus your
account value as of the effective date of the change.
Option 3 Option 1 your stated death benefit before the change plus
(a) the sum of the premiums we receive, minus (b)
partial withdrawals you have taken as of the effective
date of the change.
We increase or decrease your stated death benefit to keep the net amount at risk
the same on the date of your death benefit option change. Additionally, there is
no change to the amount of term insurance if you have an adjustable term
insurance rider. SEE COST OF INSURANCE CHARGE, PAGE 41.
If you change your death benefit option, we adjust the stated death benefit for
each of your segments by allocating your account value to each benefit segment.
For example, if you change from death benefit option 1 to option 2, your stated
death benefit is decreased by the amount of your account value allocation to
that segment. If you change from death benefit option 2 to option 1, your stated
death benefit is increased by the amount allocated to that segment. We do not
adjust the target premium when you change your death benefit option.
Death benefit options 2 and 3 are not available during the continuation of
coverage period. SEE CONTINUATION OF COVERAGE, PAGE 26.
CHANGES IN DEATH BENEFIT AMOUNTS
You may increase the target or stated death benefit while your policy is in
force and before the policy anniversary when the insured person turns age 75.
You may request a decrease in the stated death benefit only after your first
policy anniversary.
Contact our customer service center to request an increase or decrease in death
benefit. The request is effective as of the next monthly processing date after
we receive your request and approve it. On the monthly processing date, we
deduct the monthly deductions from your account value. Any requested change in
your coverage must be for at least $1,000.
After we approve your request, we will send you a new schedule page.
Keep the new schedule with your policy. We may ask you to send your policy to us
so that we can note the change in your schedule.
We may not approve a requested change if it will disqualify your policy as life
insurance under federal income tax law. If we disapprove a change for any
reason, we provide you with a notice of our decision. SEE TAX CONSIDERATIONS,
PAGE 44.
If you decrease your death benefit, you may not decrease your target death
benefit below the minimum we require to issue your policy.
There may be tax consequences as a result of a decrease in your death benefit.
SEE TAX STATUS OF THE POLICY, PAGE 44 AND MODIFIED ENDOWMENT CONTRACTS, PAGE 45.
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Corporate Benefits 23
<PAGE>
Requested reductions in the death benefit will first be applied to decrease the
target death benefit. We decrease your stated death benefit only after your
adjustable term insurance rider coverage is reduced to zero. If you have more
than one segment, we divide subsequent decreases in stated death benefit among
your benefit segments pro rata unless state law requires differently.
You must provide satisfactory evidence that the insured person is still
insurable in order to increase your death benefit.
Unless you tell us differently, we assume any request you make for an increase
in your target death benefit is also a request for an increase to the stated
death benefit. Thus, the amount of your adjustable term insurance rider will not
change. You may change the target death benefit once in a policy year.
The initial death benefit segment, or first segment, is the stated death benefit
on the effective date of the policy. An increase in the stated death benefit
(other than one caused by an option change) will cause a new segment to be
created. The segment year begins on the segment effective date and ends one year
later. The following may apply to each new segment:
o a new sales charge;
o a new deferred sales charge;
o new cost of insurance charges, guaranteed and current;
o a new incontestability period;
o a new suicide exclusion period; and
o a new target premium.
A requested increase in your stated death benefit creates a new segment. Once we
create a new segment, it is permanent unless state law requires differently. If
an option change causes the stated death benefit to increase, no new segment is
created. Instead, the size of each existing segment(s) is(are) changed. If it
causes the stated death benefit to decrease, each segment is decreased.
To determine the applicable sales charge and deferred sales charge, premiums you
pay after an increase are applied to your policy segments in the same proportion
as the target premiums for each segment bears to the sum of the target premium
for all segments. For each coverage segment, your schedule shows your target
premiums.
We allocate the net amount at risk among segments in the same proportion that
each segment bears to the total stated death benefit.
ADJUSTABLE TERM INSURANCE RIDER
You may increase your death proceeds by adding an adjustable term insurance
rider on the insured person's life. A rider changes benefits under your policy.
As the name suggests, the adjustable term insurance rider adjusts over time.
You specify a target death benefit when you apply for this rider. The target
death benefit can be level or can be scheduled to change at the beginning of any
policy year. SEE CHANGES IN DEATH BENEFIT AMOUNTS, PAGE 23.
The death benefit for the adjustable term insurance rider is the difference
between your total death benefit and your base death benefit. The death benefit
automatically adjusts daily as your base death benefit changes. Total death
benefit depends on which death benefit option is in effect:
OPTION 1: If option 1 is in effect, the total death benefit is the
greater of:
a. the target death benefit; or
b. the account value multiplied by the appropriate factor
from the death benefit corridor factors in the policy.
OPTION 2: If option 2 is in effect, the total death benefit is the
greater of:
a. the target death benefit plus the account value; or
b. the account value multiplied by the appropriate factor
from the death benefit corridor factors in the policy.
OPTION 3: If option 3 is in effect, the total death benefit is the
greater of:
a. the target death benefit plus the sum of the premiums we
receive minus partial withdrawals you have taken; or
b. the account value multiplied by the appropriate factor
from the death benefit corridor factors in the policy.
For example, under option 1, assume your base death benefit increases as a
result of an increase in your
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Corporate Benefits 24
<PAGE>
account value. The adjustable term insurance rider adjusts to provide death
proceeds equal to your total death benefit in each year:
Base Death Total Death Adjustable Term
Benefit Benefit Insurance Rider Amount
------- ------- ----------------------
$201,500 $250,000 $48,500
202,500 250,000 47,500
202,250 250,000 47,750
It is possible that the amount of your adjustable term insurance may be zero if
your base death benefit increases enough. Using the same example, if the base
death benefit under your policy grew to $250,000 or more, the adjustable term
insurance would be zero.
The adjustable term insurance can never be less than zero. Even when the
adjustable term insurance is reduced to zero, your rider remains in effect until
you remove it from your policy. Therefore, if later the base death benefit is
reduced below your target death benefit, the adjustable term insurance rider
amount reappears to maintain the total death benefit.
You may change the target death benefit schedule after it is issued, based on
our rules. SEE CHANGES IN DEATH BENEFIT AMOUNTS, PAGE 23.
Alternately, it is possible that the amount of your stated death benefit may be
zero, with all coverage under you adjustable term insurance. Using the same
example, if the stated death benefit is zero, the adjustable term insurance
would be $250,000.
We may deny any future, scheduled increases to your target death benefit if you
cancel a scheduled change, or if you ask for an unscheduled decrease in your
target death benefit.
Partial withdrawals, changes from death benefit option 1 to option 2 and base
decreases may reduce the amount of your target death benefit. SEE PARTIAL
WITHDRAWALS, PAGE 31, AND CHANGES IN DEATH BENEFIT OPTIONS, PAGE 22.
There is no defined premium for a given amount of adjustable term insurance
coverage. Instead, we deduct a monthly cost of insurance charge from your
account value. The cost of insurance for this rider is calculated as the monthly
cost of insurance rate for the rider coverage multiplied by the adjustable term
death benefit in effect that month. The cost of insurance rates will be
determined by us from time to time. They will be based on the issue age, gender,
and premium class of the person insured, as well as the length of time since
your policy date. The monthly guaranteed maximum cost of insurance rates for
this rider will be in the policy. SEE COST OF INSURANCE CHARGE, PAGE 41.
The only charge for this coverage is the cost of insurance charge. The total
charge that you pay may be less if you have coverage under an adjustable term
insurance rider instead of the base death benefit. If the target death benefit
is increased by you after the rider is issued, we use the same cost of insurance
rate schedule for the entire coverage for this rider. These rates are based on
the original premium class even though satisfactory new evidence of insurability
is given to us for the increased schedule.
Not all policy features apply to the adjustable term insurance rider. Under this
rider, there is no surrender value and a policy loan is not available. The
adjustable term insurance rider does not contribute to the policy account value
nor to investment performance under your policy. The adjustable term insurance
rider provides benefits only at the insured person's death.
SPECIAL FEATURES
DESIGNATED DEDUCTION OPTION
You may designate a deduction investment option from which we will take your
monthly charges and your deferred sales charge. You may make this designation at
policy application or later. You may not use the loan division as your
designated deduction option.
If you do not choose a designated deduction option, or if the amount in your
designated deduction option is not enough to cover the monthly deductions and
deferred sales charge, these charges are taken from the variable and guaranteed
interest divisions in the same proportion that your account value in each has to
your total net account value as of the monthly processing date.
If you change the designated deduction option, we consider this a premium
allocation change for which there may be a charge. SEE POLICY TRANSACTION FEES,
PAGE 42.
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RIGHT TO EXCHANGE POLICY
During the first 24 months after your policy date, you have the right to
exchange your policy for a guaranteed policy, unless state law requires
differently. To do this, we transfer the amount you have in the variable
division to the guaranteed interest division. We allocate all of your future net
premiums to the guaranteed interest division. We do not allow any future
payments or transfers to the variable division after you exercise this right. We
will not charge you for this exchange. SEE THE GUARANTEED INTEREST DIVISION,
PAGE 16.
POLICY MATURITY
If the insured person reaches age 100 and you do not want the continuation of
coverage feature, you may surrender the policy for the net account value. Your
policy then ends. Some part of this payment may be taxable. You should consult
your tax adviser.
CONTINUATION OF COVERAGE
The continuation of coverage feature allows your insurance coverage to continue
beyond when the insured person reaches age 100. If you allow the continuation of
coverage feature to become effective, we:
o transfer your net account value (excluding the amount in the loan
division) into the guaranteed interest division;
o charge a one-time $200 administrative fee to your policy to cover
future expenses;
o terminate the adjustable term insurance rider and the target death
benefit becomes the stated death benefit;
o convert death benefit option 2 or option 3 to death benefit option 1,
if applicable; and
o terminate investment features.
The adjustable term insurance rider then terminates. If you have no adjustable
term insurance rider coverage, your stated death benefit is unchanged. You may
make no further premium payments.
Your insurance coverage continues until the insured person's death, unless the
policy lapses or is surrendered. However, we deduct no further cost of insurance
charges and your monthly deductions cease. SEE CONTINUATION OF COVERAGE
ADMINISTRATIVE FEE, PAGE 43.
Your net account value may not be transferred into the variable division after
the insured person reaches age 100.
During the continuation of coverage period, you may take policy loans or partial
withdrawals from your policy.
If you have outstanding policy loans, interest continues to accrue. If you fail
to make sufficient loan or loan interest payments, it is possible that the loan
plus accrued interest may become greater than your account value and cause your
policy to lapse. To avoid this, you may repay loans and make loan interest
payments during the continuation of coverage period. However, we will not accept
additional premium payments.
If you wish to stop coverage after the continuation of coverage feature begins,
you may surrender your policy and receive the net account value. All other
consequences of surrender apply. SEE SURRENDER, PAGE 33.
The continuation of coverage feature may not be available in all states. If a
state has approved this feature, it is automatic and you do not need to take any
action to activate it.
The tax consequences of coverage continuing beyond when the insured person
reaches age 100 are uncertain. You should consult a tax adviser as to those
consequences.
POLICY VALUES
ACCOUNT VALUE
Your account value is the total amount you have in the guaranteed interest
division, the variable division, and the loan division. Your account value
reflects:
o net premiums;
o deductions for charges;
o partial withdrawals;
o investment performance of the variable investment options;
o interest earned on the amount you have in the guaranteed interest
division; and
o interest earned on the amount you have in the loan division.
NET ACCOUNT VALUE
Your policy's net account value is your account value minus the amount of your
outstanding policy loans and accrued loan interest, if any. Your
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Corporate Benefits 26
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surrender value is the same as your net account value.
DETERMINING THE VALUE IN THE VARIABLE DIVISION
The amounts included in the variable division are measured by accumulation units
and accumulation unit values. The value of a variable investment option is the
accumulation unit value for that option times the number of accumulation units
you own in that option. Each variable investment option has a different
accumulation unit value.
You purchase accumulation units whenever you allocate premium or make transfers
to a variable investment option. This includes transfers from the loan division.
The valuation date is each date for which the net asset value of the investment
portfolio shares and unit values of the variable investment options are
determined. Valuation dates are each day the New York Stock Exchange and the
company's customer service center are open for business, except for days on
which a corresponding investment portfolio does not value its shares, or any
other day as required by law. Our customer service center may not be open for
business on: New Year's Day, Martin Luther King, Jr.'s Birthday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, the day after Thanksgiving,
Christmas Day and the day before or after Christmas.
We redeem accumulation units:
o when you take a partial withdrawal;
o when amounts are transferred from a variable investment option
(including transfers to the loan division);
o for the monthly deductions from your account value;
o for policy transaction charges;
o on surrender; and
o to pay the death benefit after the insured person dies.
We calculate the number of variable investment option accumulation units
purchased or redeemed by:
1. dividing the dollar amount of your transaction by:
2. the accumulation unit value calculated at the close of business on the
valuation date of the transaction.
The accumulation unit value is the value determined as of each valuation date.
The accumulation unit value of each variable investment option varies with the
investment performance of the underlying portfolio. It reflects:
o investment income;
o realized and unrealized capital gains and losses; and
o investment portfolio expenses.
SEE HOW WE CALCULATE ACCUMULATION UNIT VALUES, PAGE 27.
The date of a transaction is the date we receive your premium or transaction
request at our customer service center, so long as the date of receipt is a
valuation date. Each valuation date ends at 4:00 p.m. Eastern time. We use the
accumulation unit value which is next calculated after we receive your premium
or transaction request and we use the number of accumulation units attributable
to your policy on the date of receipt.
We take monthly deductions from your account value as of the monthly processing
date. If your monthly processing date is not a valuation date, the monthly
deduction is processed on the next valuation date.
The value of amounts allocated to the variable investment option goes up or down
depending on investment performance.
FOR AMOUNTS IN THE VARIABLE INVESTMENT OPTIONS, THERE IS NO GUARANTEED MINIMUM
CASH VALUE.
HOW WE CALCULATE ACCUMULATION UNIT VALUES
We determine accumulation unit values on each valuation date.
We generally set the accumulation unit value for a variable investment option at
$10 when the investment option is first opened. After that, the accumulation
unit value on any valuation date is:
1. the accumulation unit value for the preceding valuation date multiplied
by
2. the accumulation experience factor for that variable investment option
for the valuation period.
Every valuation period begins at 4:00 p.m. Eastern time on a valuation date and
ends at 4:00 p.m. Eastern time on the next valuation date.
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Corporate Benefits 27
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We calculate an accumulation experience factor for each variable investment
option every valuation date as follows:
1. We take the share value of the underlying portfolio shares in the
variable investment option as reported to us by the investment
portfolio managers as of the close of business on that valuation date.
2. We add dividends or capital gain distributions declared per share and
reinvested by the investment portfolio on the date that the share value
is affected. If applicable, we subtract a charge for taxes from this
amount.
3. We divide the remaining amount by the value of the shares in the
underlying investment portfolio for the variable investment option at
the close of business on the previous valuation date.
TRANSFERS OF ACCOUNT VALUE
You may make up to twelve free transfers among the variable investment options,
or the guaranteed interest division, in each policy year. You may not make
transfers until after your free look period ends if your state requires a refund
of premium during the free look period.
We do not limit your number of transfers, but we may charge a $10 fee for each
transfer that you make after the first twelve in each policy year. We do not
include transfers for automatic rebalancing or dollar cost averaging toward your
twelve free transfers. You may not make transfers during the continuation of
coverage period.
You may make transfer requests in writing, or by telephone if you have telephone
privileges, to our customer service center. Your transfer takes effect on the
valuation date we receive your request. The minimum amount you may transfer is
$100. This minimum does not need to come from one investment option or be
transferred to one investment option as long as the total amount you transfer is
at least $100. However, if the amount remaining in a variable investment option
is less than $100 when you make a transfer request, we transfer the entire
amount out of that variable investment option.
EXCESSIVE TRADING
Excessive trading activity can disrupt investment portfolio management
strategies and increase portfolio expenses by causing:
o increased trading and transaction costs;
o disruption of planned investment strategies;
o forced and unplanned portfolio turnover;
o lost opportunity costs; and
o the investment portfolios to have large asset swings that decrease
their ability to provide maximum investment return to all policyowners.
In response to excessive trading, we may place restrictions or refuse transfers
made by third-party agents acting on behalf of owners such as a market timing
service. We will refuse or place restrictions on transfers when we determine, in
our sole discretion, that transfers are harmful to the investment portfolios, or
to policyowners as a whole.
GUARANTEED INTEREST DIVISION TRANSFERS
Transfers into the guaranteed interest division are not restricted.
You may transfer from the guaranteed interest division only in the first 30 days
of each policy year. Transfer requests received within 30 days before your
policy anniversary are deemed to occur on your policy anniversary. A request
received by us within 30 days after your policy anniversary is effective as of
the valuation date we receive it. Transfer requests made at any other time will
not be processed.
Transfers from the guaranteed interest division are limited to the largest of:
o 25% of your guaranteed interest division balance at the time of your
first transfer or withdrawal out of it in that policy year;
o the sum of the amounts you have transferred and withdrawn from the
guaranteed interest division in the prior policy year; or
o $100.
DOLLAR COST AVERAGING
If your policy has at least $10,000 invested in either the Liquid Asset
Portfolio, or the Limited Maturity Bond Portfolio, you can elect dollar cost
averaging. The main goal of dollar cost averaging is to protect your policy
values from short-term price changes.
DOLLAR COST AVERAGING DOES NOT ASSURE A PROFIT NOR DOES IT PROTECT YOU AGAINST A
LOSS IN A DECLINING MARKET.
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Corporate Benefits 28
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This systematic plan of transferring account values is intended to reduce the
risk of investing too much when the price of an investment portfolio's shares is
high. It also reduces the risk of investing too little when the price of an
investment portfolio's shares is low. Since you transfer the same dollar amount
to other investment options each period, you purchase more units in an
investment option if the unit value is low, and you purchase fewer units if the
unit value is high.
You may add dollar cost averaging to your policy at any time. The first dollar
cost averaging date must be at least one day after we receive your dollar cost
averaging request. Dollar cost averaging cannot begin until after the end of
your free look period if your state requires refund of all premiums we receive
during the free look period.
With dollar cost averaging, you designate either a dollar amount, or a
percentage of your account value, for automatic transfer from either the
investment option invested in either the Liquid Asset Portfolio or the Limited
Maturity Bond Portfolio for automatic transfer. Each period, we automatically
transfer the amount you select from your chosen source investment option to one
or more other variable investment options. You may not make transfers to or from
the guaranteed interest division or the loan division under dollar cost
averaging.
The minimum percentage you may transfer to any one investment option is 1% of
the total amount you transfer to all investment options you select. You must
transfer at least $100 for each dollar cost averaging transfer.
Dollar cost averaging may occur on the same day of the month either monthly,
quarterly, semi-annually, or annually. Unless you tell us otherwise, dollar cost
averaging automatically takes place monthly, on the monthly processing date.
We do not count dollar cost averaging transfers toward your twelve free
transfers per policy year. There is no charge for this feature.
You may have both dollar cost averaging and automatic rebalancing at the same
time. The investment option from which your dollar cost averaging transfers are
taken cannot be included in your automatic rebalancing allocation program.
CHANGING DOLLAR COST AVERAGING
You may change your dollar cost averaging program one time per policy year. If
you have telephone privileges, you may make changes to the dollar cost averaging
program by telephoning our customer service center. SEE TELEPHONE PRIVILEGES,
PAGE 36.
TERMINATING DOLLAR COST AVERAGING
You may cancel dollar cost averaging by sending satisfactory notice to our
customer service center. We must receive it at least one day before the next
dollar cost averaging date.
Dollar cost averaging will terminate if:
1. you specify a termination date; or
2. your balance remaining in the investment option from which your dollar
cost averaging transfers are taken reaches a dollar amount you set; or
3. on any dollar cost averaging date, the amount in the investment option
from which you want to make a transfer is equal to or less than the
amount to be transferred. We will transfer the remaining amount and
dollar cost averaging ends.
AUTOMATIC REBALANCING
Automatic rebalancing provides you with a method for maintaining a consistent
approach to investing account values over time, and simplifying the process of
asset allocation by dividing amounts among the investment options you have
chosen.
Transfers made for automatic rebalancing do not count toward your twelve free
transfers per policy year. There is no charge for this feature.
If you choose this feature, on each rebalancing date we transfer amounts among
the investment options to match your pre-set automatic rebalancing allocation
percentages. After the transfers, the ratio of your account value in each
investment option to your total account value for all investment options
included in automatic rebalancing matches the automatic rebalancing allocation
percentage for that investment option. This action rebalances the amounts in the
investment options that do not match your set allocation. This happens if an
investment option outperforms other investment options for that time period.
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Corporate Benefits 29
<PAGE>
You may choose the automatic rebalancing feature on your application or later by
completing our customer service form. Automatic rebalancing may occur on the
same day of the month either monthly, quarterly, semi-annually, or annually. If
you do not specify, automatic rebalancing will occur on the last valuation date
of a calendar quarter.
If you choose automatic rebalancing on your policy application, the first
transfer occurs on the date you select (after your free look period if your
state requires return of all premiums we receive during the free look period).
If you elect this feature after your policy date, we process the first
transaction on the date you have requested. If you requested no date, processing
is on the last valuation date of the calendar quarter we receive your notice at
our customer service center.
You may have both automatic rebalancing and dollar cost averaging at the same
time. The investment option from which your dollar cost averaging transfers are
taken cannot be included in your automatic rebalancing allocation program. You
may not include the loan division in your automatic rebalancing allocations.
CHANGING AUTOMATIC REBALANCING
You may change your allocation percentages for automatic rebalancing at any
time. Your allocation change is effective on the valuation date that we receive
it at our customer service center. If you reduce the amount allocated to the
guaranteed interest division, it is considered a transfer from that division.
You must meet the requirements for the maximum transfer amount and time
limitations on transfers from the guaranteed interest division. SEE TRANSFERS OF
ACCOUNT VALUE, PAGE 28.
TERMINATING AUTOMATIC REBALANCING
You may terminate automatic rebalancing at any time, as long as we receive your
notice of termination at least one day before the next automatic rebalancing
date.
POLICY LOANS
You may borrow against your policy at any time after the first monthly
processing date by using your policy as security for a loan, or as otherwise
required by law. The amount you borrow is called a policy loan. Your policy loan
is:
1. the total amount you borrow from your policy; plus
2. any policy loan interest that is capitalized when due; minus
3. policy loan repayments you make.
Unless state law requires differently, a new policy loan must be at least $100.
The maximum amount you can borrow on any valuation date, unless required
differently by state law, is your net account value minus the monthly deductions
to your next policy anniversary or 13 monthly deductions if you take a loan
within thirty days before your next policy anniversary.
Your request for a policy loan must be directed to our customer service center.
If you have telephone privileges, you may request a policy loan for less than
$25,000 by telephoning our customer service center. SEE TELEPHONE PRIVILEGES,
PAGE 36.
When you request a loan you may specify one investment option from which the
loan will be taken. If you do not specify one, the loan will be taken
proportionately from each active investment option you have.
When you take a policy loan, we transfer an amount equal to your policy loan
from the specified investment option proportionately or from the variable and
the guaranteed interest divisions to the loan division. We follow this same
process for loan interest due at your policy anniversary. We credit the loan
division with interest at an annual rate of 3%.
The loan division is part of our general account, separate from the guaranteed
interest division.
Loan interest charges on your policy loan accrue daily at an annual interest
rate of 3.25%. Interest is due in arrears on each policy anniversary. If you do
not pay your interest when it is due, we add it to your policy loan.
If you request an additional loan, we add the amount you request to your
existing outstanding policy loan. This way, there is only one loan outstanding
on your policy at any time.
Policy loans may cause your policy to lapse if your net account value is not
enough to pay all deductions each month. SEE LAPSE, PAGE 32.
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Corporate Benefits 30
<PAGE>
Policy loans may have tax consequences. SEE DISTRIBUTIONS OTHER THAN DEATH
BENEFITS FROM MODIFIED ENDOWMENT CONTRACTS, PAGE 45, AND DISTRIBUTIONS OTHER
THAN DEATH BENEFITS FROM POLICIES THAT ARE NOT MODIFIED ENDOWMENT CONTRACTS,
PAGE 46.
LOAN REPAYMENT
You may repay all or part of your policy loan at any time. We assume that any
payments you make, other than scheduled premiums, are policy loan repayments.
You must tell us otherwise if you want additional payments to be premium
payments.
When you make a loan repayment, we transfer an amount equal to your repayment
from the loan division to the variable investment options and the guaranteed
interest division in the same proportion as your current premium allocation,
unless you tell us otherwise.
LOANS AND YOUR BENEFITS
Taking a loan decreases the amount you have in the investment options. Accruing
loan interest will change your net account value as compared to what it would
have been if you did not take a loan.
Even if you repay your loan, it has a permanent effect on your account value.
The benefits under your policy may be affected.
The loan is a first lien on your policy. If you do not repay your policy loan,
we deduct your outstanding policy loan and accrued loan interest from the death
benefit payable, the surrender value payable.
The policy lapses when the account value minus policy loans and accrued loan
interest is not enough to cover your monthly deductions. If your policy lapses
with a loan outstanding, you may have adverse tax consequences. SEE
DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM MODIFIED ENDOWMENT CONTRACTS, PAGE
45, AND DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM POLICIES THAT ARE NOT
MODIFIED ENDOWMENT CONTRACTS, PAGE 46.
If you use the continuation of coverage feature and you have a policy loan, loan
interest continues to accrue. If you do not make loan payments your policy could
lapse.
PARTIAL WITHDRAWALS
You may request a partial withdrawal on any valuation date after your first
policy anniversary by contacting our customer service center. You make a partial
withdrawal when you withdraw part of your net account value. If your request is
by telephone, the partial withdrawal must be for an amount less than $25,000 and
may not cause a decrease in your death benefit; otherwise, your request must be
in writing. SEE TELEPHONE PRIVILEGES, PAGE 36.
You may take only one partial withdrawal per policy year.
The minimum partial withdrawal you may take is $100. The maximum partial
withdrawal you may take is the amount which leaves $500 as your net account
value. If you request a withdrawal of more than this maximum, we require you to
surrender your policy. When you take a partial withdrawal, we deduct your
withdrawal amount plus any service fee from your account value. SEE CHARGES,
PAGE 40.
Partial withdrawals may have adverse tax consequences. SEE DISTRIBUTIONS OTHER
THAN DEATH BENEFITS FROM MODIFIED ENDOWMENT CONTRACTS, PAGE 45, AND
DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM POLICIES THAT ARE NOT MODIFIED
ENDOWMENT CONTRACTS, PAGE 46.
PARTIAL WITHDRAWALS UNDER DEATH BENEFIT OPTION 1
If you selected death benefit option 1, and if no more than fifteen years have
passed since your policy date and the insured person is not yet age 81, you may
make a partial withdrawal of up to the greater of 10% of your account value, or
5% of your stated death benefit without decreasing the stated death benefit.
Otherwise amounts you withdraw will reduce your stated death benefit by the
amount of the withdrawal unless your policy death benefit has been increased due
to the federal income tax definition of life insurance.
If your policy death benefit has been increased due to the federal income tax
definition of life insurance at the time of the partial withdrawal, then at
least part of your partial withdrawal may be made without reducing your stated
death benefit.
PARTIAL WITHDRAWALS UNDER DEATH BENEFIT OPTION 2
If you have selected death benefit option 2, a partial withdrawal does not
reduce your stated death benefit or target death benefit. However, we reduce the
total
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Corporate Benefits 31
<PAGE>
death benefit by at least the partial withdrawal amount because your account
value is reduced.
PARTIAL WITHDRAWALS UNDER DEATH BENEFIT OPTION 3
If you have selected death benefit option 3 and your partial withdrawal is less
than the total of premiums we receive less the total of your prior partial
withdrawals, then your stated death benefit will not be reduced. However, your
total death benefit will be reduced by at least the amount of your partial
withdrawal.
If your partial withdrawal is more than the amount of premiums we receive less
the total of your prior partial withdrawals, then the excess is treated in the
same manner as partial withdrawals under death benefit option 1. SEE PARTIAL
WITHDRAWALS UNDER DEATH BENEFIT OPTION 1, PAGE 31.
STATED DEATH BENEFIT AND TARGET DEATH BENEFIT REDUCTIONS
Generally, we reduce the stated death benefit by the amount of the partial
withdrawal. A partial withdrawal may reduce your target death benefit.
Partial withdrawals do not reduce the stated death benefit if your base death
benefit has been increased to qualify your policy as life insurance under the
federal income tax laws and if you withdraw an amount that is no greater than
the amount that reduces your account value to a level which no longer requires
your base death benefit to be increased to qualify as life insurance for federal
income tax law purposes. SEE TAX STATUS OF THE POLICY, PAGE 44.
We require a minimum target death benefit to issue your policy. You are not
allowed to take a partial withdrawal if it reduces your target death benefit
below this minimum. SEE GROUP OR SPONSORED ARRANGEMENTS OR CORPORATE PURCHASERS,
PAGE 43.
PARTIAL WITHDRAWAL MECHANICS
Unless you tell us otherwise, we will make a partial withdrawal from the
guaranteed interest division and the variable division in the same proportion
that each has to your net account value immediately before your withdrawal. The
amount withdrawn from the guaranteed interest division may not be for more than
your total withdrawal multiplied by the ratio of your account value in the
guaranteed interest division to your total net account value immediately before
the partial withdrawal transaction.
We will send a new schedule page for your policy showing the effect of your
withdrawal if there is any change to your stated death benefit or your target
death benefit. Or, to make this change, we may ask that you return the policy to
our customer service center.
Your withdrawal and any reductions in the death benefits are effective as of the
valuation date on which we receive your request. SEE DISTRIBUTIONS OTHER THAN
DEATH BENEFITS FROM MODIFIED ENDOWMENT CONTRACTS, PAGE 45, AND DISTRIBUTIONS
OTHER THAN DEATH BENEFITS FROM POLICIES THAT ARE NOT MODIFIED ENDOWMENT
CONTRACTS, PAGE 46.
LAPSE
Your insurance coverage continues as long as your net account value is enough to
pay all deductions each month.
In any policy year, if you have an outstanding policy loan, your policy will
lapse if the loan plus the accrued interest owed is more than the account value.
After the insured person reaches age 100 if the continuation of coverage feature
is active, the policy could lapse if there is an outstanding policy loan even
though there are no further monthly deductions.
GRACE PERIOD
Your policy enters the 61-day lapse grace period if, on a monthly processing
date your net account value is zero (or less).
We notify you that the policy is in a grace period at least 30 days before the
grace period ends. We provide this notice to you, or a person to whom you have
assigned your policy, at the last address in our records. We notify you of the
required premium payment necessary to prevent your policy from lapsing. This
amount is generally the amount of past due charges, plus the amount that covers
your estimated monthly policy deductions for the next two months. If the insured
person dies during the grace period, we pay death proceeds to your
beneficiary(ies) with reductions for any policy loan balance, accrued loan
interest, and monthly deductions owed.
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Corporate Benefits 32
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If we receive payment of the required amount before the end of the grace period,
we apply it to your account value in the same manner as your other premium
payments, then we take the overdue deductions from your account balance.
If you do not pay the full amount required within the 61-day grace period, your
policy (and rider) lapse without value. We then withdraw your remaining account
balance from the variable and guaranteed interest divisions. We deduct amounts
you owe us and inform you that the policy has ended.
REINSTATEMENT
If you do not pay enough premium before the end of the grace period, your policy
lapses. You may reinstate your policy and rider within five years after the
grace period ends.
Unless state law requires differently, we will reinstate your policy and rider
if:
1. you have not surrendered your policy for its surrender value;
2. you provide satisfactory evidence to us that the insured person is
still insurable according to our normal rules of underwriting; and
3. we receive enough premium from you to keep your policy and rider in
force from the beginning to the end of the grace period and for two
months after the reinstatement date.
Reinstatement is effective as of the monthly processing date following our
approval of your reinstatement application. If you had a policy loan when
coverage ended, we reinstate it with accrued loan interest to the date of lapse.
The cost of insurance charges in effect at the time of reinstatement for the age
of the insured person are adjusted to reflect the time since the lapse.
We apply net premiums received after reinstatement according to the premium
allocation instructions in effect at the start of the grace period, unless you
tell us otherwise.
SURRENDER
You may surrender your policy for its surrender value any time while the insured
person is living. You do this by sending a written request and your policy or a
lost policy form to our customer service center.
We compute your surrender value as of the valuation date we receive your
surrender request and policy at our customer service center. All insurance
coverage ends on the date we receive your surrender request and policy. SEE
POLICY VALUES, PAGE 8.
We do not pro-rate or add back charges and expenses to your account value which
we deducted on the monthly anniversary before the date your surrender is
processed.
A surrender of your policy may have adverse tax consequences. SEE DISTRIBUTIONS
OTHER THAN DEATH BENEFITS FROM MODIFIED ENDOWMENT CONTRACTS, PAGE 45, AND
DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM POLICIES THAT ARE NOT MODIFIED
ENDOWMENT CONTRACTS, PAGE 46.
GENERAL POLICY PROVISIONS
FREE LOOK PERIOD
You have the right to examine your policy. The right to examine your policy (or
free look period) starts on the date you receive your policy. If for any reason
you do not want it, you may return your policy to us or your registered
representative within the period shown in the policy. If you return your policy
to us within your state's specified time limit, we will consider it canceled as
of your policy date.
If you cancel your policy during this free look period, you will receive a
refund as determined by state law.
Generally, there are two types of free look refunds. Some states require a
return of all premiums received while others require payment of the account
value plus a refund of all charges deducted. Your policy will specify what free
look refund applies in your state. The type of free look refund allowed in your
state will affect when the initial net premium and additional net premiums we
receive before the end of the free look period are invested into the variable
investment options. SEE ALLOCATION OF NET PREMIUMS, PAGE 19.
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Corporate Benefits 33
<PAGE>
YOUR POLICY
Some groups under this policy may choose to use a master policy with policy
certificates, rather than a series of individual policies.
The entire contract between you and us is the combination of:
o the policy (or certificate);
o a copy of your original application and any applications for benefit
increases or decreases;
o the adjustable term insurance rider;
o endorsements;
o schedule pages; and
o reinstatement applications.
If you make a change to your coverage, we give you a copy of your changed
application and new schedules. If you send us your policy, we attach these items
to your policy and return it to you. Otherwise, you need to attach them to your
policy.
Unless there is fraud, we consider all statements made in an application to be
representations and not guarantees. We use no statement to deny a claim, unless
it is in an application.
A president or an officer of our company and our secretary or assistant
secretary must sign all changes or amendments we make to your policy. No other
person may change the terms or conditions of your policy.
GUARANTEED ISSUE
We only offer this policy on a guaranteed issue basis. We issue these policies
up to a preset face amount with evidence of insurability requirements.
AGE
We issue your policy at the insured person's age stated in your policy schedule.
This is based on the insured person's age as of the nearest birth date to the
policy date. We determine the insured person's age at any given time by adding
the number of completed policy years to the age calculated at issue and shown in
the schedule. At issue of your policy, the insured person must be no less than
age 15 and no more than age 85.
OWNERSHIP
The original owner is the person named as the owner in the policy application.
The owner can exercise all rights and receive the benefits during the insured
person's lifetime before the maturity date. This includes the right to change
the owner, beneficiaries, or method to pay proceeds.
As a matter of law, all rights of ownership are limited by the rights of any
person who has been assigned rights under the policy, and any irrevocable
beneficiary(ies).
You may name a new owner by giving us written notice. The effective date of the
change to the new owner is the date the prior owner signs the notice. However,
we will not be liable for any action we take before a change is recorded at our
customer service center. A change in ownership may cause the prior owner to
recognize taxable income on gain under the policy.
BENEFICIARY(IES)
You, as owner, name the beneficiary(ies) when you apply for your policy. The
primary beneficiary(ies) who survives the insured person receives the death
proceeds. Other surviving beneficiary(ies) receive death proceeds only if there
is no surviving primary beneficiary(ies). If more than one beneficiary(ies)
survives the insured person, they share the death proceeds equally, unless you
have told us otherwise. If none of your policy beneficiaries has survived the
insured person, we pay the death proceeds to you, or to your estate as owner.
Once you tell us who the beneficiary(ies) is/are, we keep this information on
file. You may name a new beneficiary during the insured person's lifetime. We
pay the death proceeds to the most recent beneficiary(ies) whom you have most
recently named and whom we have on record. We do not make multiple payments.
COLLATERAL ASSIGNMENT
You may assign your policy as security by sending written notice to us. After we
record the assignment, your rights as owner and the beneficiary's(ies') rights
(unless the beneficiary(ies) was made an irrevocable beneficiary(ies) under an
earlier assignment) are subject to the assignment. It is your responsibility to
make sure the assignment is valid.
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Corporate Benefits 34
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INCONTESTABILITY
After your policy has been in force while the insured person is alive for two
years from your policy date, we will not question the validity of the statements
in your application. After your policy has been in force while the insured
person is alive for two years from the effective date of any new segment or from
the effective date of an increase in any other benefit, we will not contest the
statements in your application for the new segment or other benefit increase.
After this policy has been in force while the insured person is alive for two
years from the effective date of any reinstatement, we will not contest the
statements in your application for reinstatement.
MISSTATEMENTS OF AGE OR GENDER
If the insured person's age or gender has been misstated, we adjust the death
benefit. We adjust death benefits to the amount which would have been purchased
for the insured person's correct age and gender. We base the adjusted death
benefit on the cost of insurance charges deducted from your account value on the
last monthly processing date before the insured person's death, or as otherwise
required by state law.
If unisex cost of insurance rates apply, we do not make any adjustments for a
misstatement of gender.
SUICIDE
If the insured person commits suicide, while that insured person is sane or
insane within two years of your policy date, unless otherwise required by state
law, we limit death benefits to:
1. the total of all premium payments we receive to the time of death;
minus
2. the amount of outstanding policy loan amounts and accrued loan
interest; minus
3. any partial withdrawals you have taken.
If the insured person has been changed, and the new insured person dies by
suicide within two years of the change date, we then limit the death benefit to:
1. your net account value as of the change date; plus
2. the premiums we receive since the change date; minus
3. the sum of any increases in policy loan amounts, accrued loan interest,
and partial withdrawals taken since the change date.
We make a limited payment to the beneficiary(ies) for a new segment or other
increase if the insured person commits suicide, while sane or insane within two
years of the effective date of a new segment, or within two years of an increase
in any other benefit, unless otherwise required by state law. The limited
payment we make is equal to the cost of insurance and monthly expense charges
which were deducted for such increase.
TRANSACTION PROCESSING
Generally, within seven days of when we receive all information required to
process a payment, we pay:
o death proceeds;
o surrender value;
o partial withdrawals; and
o loan proceeds.
We may delay processing these transactions if:
o the NYSE is closed for trading;
o trading on the NYSE is restricted by the SEC;
o there is an emergency so that it is not reasonably possible to sell
securities in the variable investment options or to determine the value
of a variable investment option's assets; or
o a governmental body with jurisdiction over the separate account allows
suspension by its order.
SEC rules and regulations determine whether or not these conditions exist.
We execute transfers among the variable investment options as of the valuation
date of our receipt of your request at our customer service center.
We determine death proceeds as of the insured person's date of death. The death
proceeds are not affected by subsequent changes in the value of the variable
investment options. We pay interest at our stated rate (or at a higher rate if
required by law) from the insured person's date of death to the date of payment.
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Corporate Benefits 35
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We may delay payment from our guaranteed interest division for up to six months,
unless state law requires otherwise, of:
o surrender proceeds;
o withdrawal amounts; or
o loan amounts.
We pay interest at our declared rate (or at a higher rate if required by law)
from the date we receive the request if we delay payment more than 30 days.
NOTIFICATION AND CLAIMS PROCEDURES
Except for certain authorized telephone requests, we must receive in writing any
election, designation, change, assignment or request made by the owner.
You must use a form acceptable to us. We are not liable for actions taken before
we receive and record the written notice. We may require you to return your
policy for certain policy changes or if you surrender it.
If the insured person dies while your policy is in force, please let us or your
registered representative know as soon as possible. We will immediately send you
instructions on how to make a claim. As proof of the deceased insured person's
death, we may require you to provide proof of the deceased insured person's age,
and a certified copy of the deceased insured person's death certificate.
The beneficiary(ies) and the deceased insured person's next of kin may need to
sign authorization forms. These forms allow us to get information about the
deceased insured person. This information may include medical records of doctors
and hospitals used by the deceased insured person.
TELEPHONE PRIVILEGES
Telephone privileges are automatically provided to you and your agent or
registered representative, unless you decline it on the application or contact
our customer service center. Telephone privileges allow you or your
agent/registered representative, if applicable, to call our customer service
center to:
o make transfers;
o change premium allocations;
o change features in your dollar cost averaging and automatic rebalancing
programs;
o request partial withdrawals; or
o request a policy loan.
Our customer service center uses reasonable procedures to make sure that
instructions received by telephone are genuine. These procedures may include:
1. requiring some form of personal identification;
2. providing written confirmation of any transactions; and
3. tape recording telephone calls.
By accepting automatic telephone privileges, you authorize us to record your
telephone calls to us. If we use reasonable procedures to confirm instructions,
we are not liable for losses due to unauthorized or fraudulent instructions. We
may discontinue this privilege at any time.
NON-PARTICIPATION
Your policy does not participate in the surplus earnings of Security Life.
DISTRIBUTION OF THE POLICIES
The principal underwriter (distributor) for our policies is ING America
Equities, Inc. ING America Equities, Inc. is a wholly owned subsidiary of
Security Life. It is registered as a broker-dealer with the SEC and the NASD. We
pay ING America Equities, Inc. for acting as the principal underwriter under a
distribution agreement.
We sell our policies through registered representatives of other broker-dealers
including, but not limited to:
1. VESTAX Securities Corporation, an indirect affiliate of Security Life
of Denver Insurance Company;
2. Locust Street Securities, Inc., an indirect affiliate of Security Life
of Denver Insurance Company;
3. Multi-Financial Securities Corp., an indirect affiliate of Security
Life of Denver Insurance Company; and
4. IFG Network Securities, Inc., an indirect affiliate of Security Life of
Denver Insurance Company.
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Corporate Benefits 36
<PAGE>
These broker-dealers have entered into selling agreements with us. They are
registered with the SEC and the NASD.
Under these selling agreements, we pay a distribution allowance to
broker-dealers, who then pay commissions to the registered representative who
sells this policy. During the first policy year, the distribution allowance may
be up to 12% of the target premium that we receive. For policy years two through
four, the distribution allowance may be up to 10% of the target premium. For
policy years five through ten, the distribution allowance may equal up to 2% of
the target premiums we receive. After the tenth policy year, there is no
distribution allowance.
Broker-dealers may receive annual renewal payments of 0.20% of the net account
value for the first twenty years of your policy and 0.10% of net account value
each year thereafter.
Compensation arrangements vary among broker-dealers and depend on particular
circumstances. In addition to the above-described compensation, we may pay
wholesaler fees and training allowances.
We pay distribution and other allowances from our resources which includes sales
charges deducted from premiums.
ADVERTISING PRACTICES AND SALES LITERATURE
We may use advertisements and sales literature to promote this product,
including:
o articles on variable life insurance and other information published in
business or financial publications;
o indices or rankings of investment securities; and
o comparisons with other investment vehicles, including tax
considerations.
We may use information regarding the past performance of the variable investment
options. Past performance is not indicative of future performance of the
investment options or the policies and is not reflective of the actual
investment experience of policyowners.
We may feature certain investment options and their managers, as well as
describe asset levels and sales volumes for our products. We may refer to past,
current, or prospective economic trends and investment performance or other
information we believe may be of interest to our customers. SETTLEMENT
PROVISIONS
You may elect to have the beneficiary(ies) receive the death proceeds other than
in one payment. If you make this election, you must do so during the insured
person's lifetime. If you have not made this election, the beneficiary(ies) may
do so within 60 days after we receive proof of the insured person's death.
You may take your surrender value in other than one payment.
The investment performance of the variable investment options does not affect
payments under these settlement options. Instead, interest accrues at a fixed
rate based on the option you choose. Payment options are subject to our rules at
the time you make your selection. A periodic payment must be at least $20.
Currently, these alternate payment options are available if the proceeds are
$2,000 or more.
Option I: PAYOUTS FOR A DESIGNATED PERIOD
Option II: LIFE INCOME WITH PAYOUTS GUARANTEED FOR A DESIGNATED PERIOD
Option III: HOLD AT INTEREST
Option IV: PAYOUTS OF A DESIGNATED AMOUNT
Option V: OTHER: OPTIONS WE OFFER AT THE TIME WE PAY THE BENEFIT.
The beneficiary(ies) or other person (successor to the beneficiary(ies)) who has
the right to receive payments may name someone else to receive amounts that we
would otherwise pay to the beneficiary's(ies') estate if he/she/they die(s). The
person who has the right to receive payment may name another person, at any
time. Designating another person to receive payment may have income, gift or
estate tax consequences. Consult a professional tax adviser before making this
designation.
We must approve an arrangement that involves someone who is to receive payment
who is not a human being (for example, a corporation). We must approve a
situation involving a person who is to receive payment while acting on behalf of
another, called a fiduciary. We base the details of all arrangements on our
rules at the time the arrangements are effective. This includes rules on the:
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Corporate Benefits 37
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o minimum amount we pay under an option;
o minimum amounts for installment payments;
o withdrawal rights;
o right to receive payments over time, which we may offer as a lump sum
payment;
o naming of people who have the right to receive payment and their
successors; and
o proof of age and survival.
ADMINISTRATIVE INFORMATION ABOUT THE POLICY
VOTING PRIVILEGES
We invest the variable investment option's assets in shares of investment
portfolios. We are the legal owner of the shares held in the separate account
and we have the right to vote on certain issues. Among other things, we may vote
on issues described in the fund's current prospectus, or issues requiring a vote
by shareholders under the Investment Company Act of 1940.
Even though we own the shares, we give you the opportunity to tell us how to
vote the number of shares attributable to your account value.
We count fractional shares. If you have a voting interest, we send you proxy
material and a form on which to give us your voting instructions.
Each investment portfolio's shares have the right to one vote. The votes of all
investment portfolios are cast together on a collective basis, except on issues
for which the interests of the portfolios differ. In these cases, voting is done
on a portfolio-by-portfolio basis.
Examples of issues that require a portfolio-by-portfolio vote are:
1. changes in the fundamental investment policy of a particular investment
portfolio; or
2. approval of an investment advisory agreement.
We vote the shares in accordance with your instructions at meetings of
investment portfolio shareholders. We vote any investment portfolio shares that
are not attributable to policies, and any investment portfolio shares for which
the owner does not give us instructions, the same way we vote as if we did
receive owner instructions.
We reserve the right to vote investment portfolio shares without getting
instructions from policy owners if the federal securities laws, regulations, or
their interpretations change to allow this.
You may instruct us only on matters relating to the investment portfolios
corresponding to divisions in which you have invested assets as of the record
date set by the investment portfolio's Board for the portfolio's shareholders
meeting. We determine the number of investment portfolio shares in each variable
investment option that we attribute to your policy by dividing your account
value allocated to that variable investment option by the net asset value of one
share of the matching investment portfolio.
MATERIAL CONFLICTS
We are required to track events to identify any material conflicts arising from
using investment portfolios for both variable life and variable annuity separate
accounts. The boards of the investment portfolios, Security Life, and other
insurance companies participating in the investment portfolios, have this same
duty. There may be a material conflict if:
o state insurance law or federal income tax law changes;
o investment management of an investment portfolio changes; or
o voting instructions given by owners of variable life insurance policies
and variable annuity contracts differ.
The investment portfolios may sell shares to certain qualified pension and
retirement plans qualifying under Code Section 401. These include cash or
deferred arrangements under Code Section 401(k). Therefore, there is a
possibility that a material conflict may arise between the interests of owners
in general, or between certain classes of owners, and these retirement plans or
participants in these retirement plans.
If there is a material conflict, we have the duty to determine appropriate
action, including removing the portfolios involved from our variable investment
options. We may take other action to protect policy owners. This could mean
delays or interruptions of the variable operations.
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Corporate Benefits 38
<PAGE>
When state insurance regulatory authorities require us, we may ignore voting
instructions relating to changes in an investment portfolio's adviser or its
investment policies. If we do ignore voting instructions, we give you a summary
of our actions in the next semi-annual report to owners.
Under the Investment Company Act of 1940, we must get your approval for certain
actions involving our separate account. In this case, you have one vote for
every $100 of value you have in the variable investment options. We cast votes
credited to amounts in the variable investment options, but not credited to
policies in the same proportion as votes cast by owners.
RIGHT TO CHANGE OPERATIONS
Subject to state limitations, we may from time to time make any of the following
changes to our separate account:
1. Change the investment objective.
2. Offer additional variable investment options which will invest in
portfolios we find appropriate for policies we issue.
3. Eliminate variable investment options.
4. Combine two or more variable investment options.
5. Substitute a new investment portfolio for an existing portfolio. A
substitution may become necessary if, in our judgment:
o a portfolio no longer suits the purposes of your policy;
o there is a change in laws or regulations;
o there is a change in a portfolio's investment objectives or
restrictions;
o the portfolio is no longer available for investment; or
o another reason we deem a substitution is appropriate.
6. Transfer assets related to your policy class to another separate
account.
7. Withdraw the separate account from registration under the 1940 Act.
8. Operate the separate account as a management investment company under
the 1940 Act.
9. Cause one or more variable investment options to invest in a mutual
fund other than, or in addition to, the investment portfolios.
10. Stop selling these policies.
11. End any employer or plan trustee agreement with us under the
agreement's terms.
12. Limit or eliminate any voting rights for the separate account.
13. Make any changes required by the 1940 Act, or its rules or regulations.
We will not make a change until it is effective with the SEC and approved by the
appropriate state insurance departments, if necessary. We will notify you of
changes. If you wish to transfer the amount you have in the affected investment
option to another variable investment option, or to the guaranteed interest
division, you may do so free of charge. Just notify us at our customer service
center.
REPORTS TO OWNERS
At the end of each policy year we send a report to you that shows:
o your total net policy death benefit (your stated death benefit plus
adjustable term insurance rider death benefit, if any);
o your account value;
o your policy loan if any, plus accrued interest;
o your surrender value;
o information about the variable investment options; and
o your account transactions during the previous year showing net
premiums, transfers, deductions, loan amounts or withdrawals.
We also send semi-annual reports with financial information on the investment
portfolios, including a list of the investment holdings of each portfolio, to
you.
We send confirmation notices to you throughout the year for certain policy
transactions.
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Corporate Benefits 39
<PAGE>
CHARGES AND DEDUCTIONS
The amount of a charge may not correspond to the cost incurred by us to provide
the service or benefits associated with the particular policy. For example, the
sales charges may not cover all of the sales and distribution expenses actually
incurred by us. Proceeds from other charges, including the mortality and expense
risk charge or cost of insurance charges, may be used in part to cover such
expenses.
DEDUCTIONS FROM PREMIUMS
We consider any payment we receive to be a premium if the insured person is not
yet age 100 and you do not have an outstanding policy loan. After we deduct
certain expenses from your premium payment, we add the remaining net premium to
your account value.
TAX CHARGES
We pay state and local taxes in almost all states. These taxes vary in amount
from state to state and may vary from jurisdiction to jurisdiction within a
state. Currently, state and local taxes range from 0% to 5%. In the first policy
or segment year, we deduct 2.5% of each premium payment you make up to target
premium to cover these taxes. In subsequent years, we deduct 2.5% of all premium
payments you make. This charge approximates the average tax rate we expect to
pay.
In the first policy or segment year, we deduct 1.5% of each premium payment you
make up to target premium. In subsequent years, we deduct 1.5% of all premiums
you pay to cover our estimated costs for the federal income tax treatment of
deferred acquisition costs. This cost is determined solely by a portion of the
amount of life insurance premiums we receive.
We reserve the right to increase or decrease your premium expense charge for
taxes as a result of changes in the tax law, within limits set by state law. We
also reserve the right to increase or decrease your premium expense charge for
the federal income tax treatment of deferred acquisition costs based on any
change in that cost to us.
SALES CHARGE
We deduct a percentage from each of your premium payments to compensate us for
the costs we incur in selling the policies. In the first policy or segment year
this charge is 2% of the premiums you pay up to target premium. Each year
thereafter, we deduct 0.5% of all premium payments we receive.
The sales charge helps to cover the costs of distribution, preparing our sales
literature, promotional expenses, and other direct and indirect expenses. The
amount charged is not specifically related to sales expenses in a particular
year.
DEFERRED SALES CHARGE
We deduct an annual deferred sales charge that is a percentage of your premium
payments in each of the first ten policy or segment years. The charge is
deducted from your account value on each of the seven policy or segment
anniversaries following the year of the premium payment. Each policy segment has
its own deferred sales charge. We allocate your premium payments among policy
segments to determine the deferred sales charges under your policy if you have
more than one segment. SEE CHANGES IN DEATH BENEFIT AMOUNTS, PAGE 23.
The deferred sales charge compensates us for a portion of the costs we incur in
selling the policies.
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Corporate Benefits 40
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Policy or | Deferred Sales Charge |
Segment | (% of Premium)* |
Year When --------------------------- Deducted at
Premium | up to in Excess | Beginning of
Payment | Target of Target | Policy or
are Made | Premium Premium | Segment Years
- -------------| ----------------------- | -------------
| |
1 | 2% 1% | 2 - 8
2 | 1.75% N/A | 3 - 9
3 | 1.75% N/A | 4 - 10
4 | 1.75% N/A | 5 - 11
5 | 0.5% N/A | 6 - 12
6 | 0.5% N/A | 7 - 13
7 | 0.5% N/A | 8 - 14
8 | 0.5% N/A | 9 - 15
9 | 0.5% N/A | 10 - 16
10 | 0.5% N/A | 11 - 17
* THESE ARE THE PERCENTAGES USED TO DETERMINE THE ANNUAL DEDUCTION. ONCE
DETERMINED, THE ANNUAL DEDUCTION IS MADE ONCE EACH YEAR FOR SEVEN YEARS.
DEFERRED SALES CHARGE EXAMPLE
(BASED ON TWO YEARS OF PREMIUM PAYMENTS)
Assume a policy has:
o a target premium of $8,000;
o premium payments of $10,000 in each of the first two years; and
o no change in death benefit.
The $10,000 premium payment for the first year incurs a deferred sales charge of
$180 each year for years two through eight:
2% of premium up to target plus 1% of premium payments over target
[.02 x $8,000 + (.01 x $2,000) = $180].
The $10,000 premium payment for the second year incurs a deferred sales charge
of $140 each year for years three through nine:
1.75% of all premium [.0175 x $8,000 = $140].
The deferred sales charge deduction is made on the monthly processing date at
the policy (or segment) anniversary.
Deferred Total
Policy or Deferred Sales Charge Deferred
Segment Sales Charge on Second Sales Charge
Year of on First Year Year Deducted at
Premium Premium Premium Policy
Payments Of $10,000 Of $10,000 Anniversary
-------- ---------- ---------- -----------
1
2 $180 $180
3 $180 $140 $320
4 $180 $140 $320
5 $180 $140 $320
6 $180 $140 $320
7 $180 $140 $320
8 $180 $140 $320
9 $140 $140
10
MONTHLY DEDUCTIONS FROM ACCOUNT VALUE
We deduct charges from your account value on each monthly processing date.
MORTALITY AND EXPENSE RISK CHARGE
We deduct a charge each month for the mortality and expense risks we assume.
This charge is 0.01667% per month (0.20% annually) of the amount you have in the
variable investment options on the monthly processing date. This charge is
deducted as a separate charge which appears on your confirmation.
The mortality risk we assume is that insured people, as a group, may live less
time than we estimated. We assume risk that expenses we incur in issuing and
administering the policies and in operating the variable investment options are
greater than the amount we estimated when we set these charges.
MONTHLY ADMINISTRATIVE CHARGE
For this policy, we charge an administrative charge of $12 per month for the
first policy year and $6 per month for each policy year beyond that. The monthly
administrative charge is designed to compensate us for ongoing costs such as:
o premium billing and collections;
o claim processing;
o policy transactions;
o record keeping;
o reporting and communications with policy owners; and
o other expenses and overhead.
COST OF INSURANCE CHARGE
The cost of insurance charge compensates us for the ongoing costs of providing
insurance coverage under the policy, including the expected cost of paying
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Corporate Benefits 41
<PAGE>
death proceeds that are more than your account value at the insured person's
death.
The cost of insurance rates may depend on the:
o issue ages of the insured people in the group;
o risk class of the insured people in the group;
o size of the group; and
o total premium the group pays.
The cost of insurance charge is equal to our current monthly cost of insurance
rate times the net amount at risk for each portion of your death benefit. We
calculate the net amount at risk monthly, at the beginning of each policy month.
For the base death benefit, the net amount at risk is calculated using the
difference between the current base death benefit and your account value. We
determine the amount of your account value after we deduct your policy charges
due on that date, other than cost of insurance charges for the base death
benefit and adjustable term insurance rider.
If your base death benefit at the beginning of a month increases (due to
requirements of the federal income tax law definition of life insurance), the
net amount at risk for your base death benefit for that month also increases.
Similarly, the net amount at risk for your adjustable term insurance rider
decreases. This means that the amount of your cost of insurance charge varies
from month to month with changes in your net amount at risk, changes in the
death benefit and with the increasing age of the insured person. We allocate the
net amount at risk to any segments in the same proportion that each segment has
to the total stated death benefit for all coverage segments as of the monthly
processing date.
We apply unisex rates where appropriate under the law. This currently includes
the State of Montana and policies purchased by employers and employee
organizations in connection with employment-related insurance or benefit
programs.
Separate cost of insurance rates apply to each segment of the base death benefit
and your adjustable term insurance rider.
These rates are never more than the guaranteed maximum rates shown in your
policy; however, they may change from time to time. The guaranteed maximum rates
for base coverage are based on the 1980 Commissioner's Standard Ordinary Sex
Distinct Mortality Table.
The maximum rates for the initial and any new segment will be printed in the
schedule which we will provide to you. This may result in higher cost of
insurance charges than those that would apply if the policy were on an
individual instead of group basis.
CHANGES IN MONTHLY CHARGES
Changes we make in the cost of insurance charges or charges for additional
benefits are for a class of insured persons. We base the new charge on changes
in expectations about:
o investment earnings;
o mortality;
o the time policies remain in effect;
o expenses; and
o taxes.
New monthly cost of insurance charges will never be more than the guaranteed
maximum rates shown in your policy.
POLICY TRANSACTION FEES
We also charge fees for certain transactions you may make under your policy. We
take these fees from the variable and the guaranteed interest divisions in the
same proportion that your account value in each division has to your net account
value immediately after the transaction.
PARTIAL WITHDRAWALS
We deduct a service fee of $25 of the amount you request from your account value
for each partial withdrawal you take to cover our costs. SEE PARTIAL
WITHDRAWALS, PAGE 31.
TRANSFERS
There may be a $10 fee for each additional transfer over twelve per policy year
to cover our costs. If you include multiple transfers in one request, it counts
as one transfer. There is no transfer fee if you are exercising the right to
exchange feature in your policy. SEE TRANSFERS OF ACCOUNT VALUE, PAGE 28, AND
RIGHT TO EXCHANGE POLICY, PAGE 26.
ILLUSTRATIONS
The first policy illustration you request in a policy year is free. After that,
we charge a fee of up to $25 for each additional policy illustration you
request.
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PREMIUM ALLOCATION CHANGE
You may make twelve free premium allocation changes per policy year. After the
twelve free premium allocation changes, we may charge you $25 for each
additional premium allocation change per policy year. If you change your
designated withdrawal investment option, we consider this a premium allocation
charge for which there may be a charge. SEE MONTHLY DEDUCTIONS FROM YOUR ACCOUNT
VALUE, PAGE 41.
CONTINUATION OF COVERAGE ADMINISTRATIVE FEE
When the insured person reaches age 100, if your policy has not been
surrendered, the continuation of coverage period begins. We will charge a
one-time administrative fee of $200. This charge compensates us for maintaining
and servicing your policy until the death of the insured person. We then no
longer charge you a monthly administrative charge.
DIVISIONS FROM WHICH WE DEDUCT CHARGES, LOANS AND PARTIAL WITHDRAWALS
<TABLE>
<CAPTION>
MONTHLY CHARGES: COST OF
INSURANCE CHARGES,
ADMINISTRATIVE FEES AND
ANNUAL DEDUCTION OF POLICY LOANS AND
DEFERRED SALES CHARGE TRANSACTION FEES PARTIAL WITHDRAWALS
- -------------- ------------------------------------- ------------------------------------- ---------------------------------
<S> <C> <C> <C>
CHOICE May choose designated Proportionally among variable May choose any investment
deduction option, including and guaranteed interest divisions option or combination of
guaranteed interest division investment options, subject to
requirements
- -------------- ------------------------------------- ------------------------------------- ----------------------------------
DEFAULT Proportionally among variable Proportionally among variable Proportionally among variable
and guaranteed interest divisions and guaranteed interest divisions and guaranteed interest divisions
</TABLE>
GROUP OR SPONSORED ARRANGEMENTS OR CORPORATE PURCHASERS
Groups of individuals, corporations or other institutions may purchase this
policy. For some group or sponsored arrangements we may reduce or waive the:
o administrative charge;
o minimum target death benefit;
o target premium;
o sales charges;
o cost of insurance charges; or
o other charges normally assessed.
These arrangements include sales to employees and certain family members of
employees of Security Life of Denver, its affiliates and appointed sales agents
and special exchange programs we may offer.
We can reduce or waive these items due to expected economies based on the
characteristics of the group or sponsored arrangement or with a corporate
purchaser. Group arrangements include those in which there is a trustee, an
employer or an association. The group may either purchase policies covering a
group of individuals or endorse a policy to a group of individuals. Sponsored
arrangements include those in which an employer or association allows us to
offer policies to its employees or members on an individual basis.
Our sales, administration and mortality costs generally vary with the size and
stability of the group, among other factors which we take into account when we
reduce charges. We make reductions to charges based on our rules in effect when
we approve a policy application. We may change these rules from time to time.
We will not be unfairly discriminatory in the variation in the administrative
charge, or other charges, fees and privileges. These variations are based on
differences in costs or services.
- --------------------------------------------------------------------------------
Corporate Benefits 43
<PAGE>
OTHER CHARGES
Under current law, we pay no tax on investment income and capital gains included
in variable life insurance policy reserves. This means that no charge is
currently made to any variable investment option for our federal income taxes.
If the tax law changes and we have federal income tax chargeable to the variable
investment options, we may make such a charge in the future.
TAX CONSIDERATIONS
The following summary provides a general description of the federal income tax
considerations associated with the policy and does not purport to be complete or
to cover all tax situations. This discussion is not intended as tax advice.
Counsel or other competent tax advisers should be consulted for more complete
information. This discussion is based upon our understanding of the present
federal income tax laws. No representation is made as to the likelihood of
continuation of the present federal income tax laws or as to how they may be
interpreted by the Internal Revenue Service.
TAX STATUS OF THE POLICY
This policy is designed to qualify as a life insurance contract under the
Internal Revenue Code. All terms and provisions of the policy shall be construed
in a manner which is consistent with that design. In order to qualify as a life
insurance contract for federal income tax purposes and to receive the tax
treatment normally accorded life insurance contracts under federal tax law, a
policy must satisfy certain requirements which are set forth in Internal Revenue
Code Section 72. However, there is very little guidance, as to how these
requirements are to be applied. Nevertheless, we believe it is reasonable to
conclude that our policies satisfy the applicable requirements. If it is
subsequently determined that a policy does not satisfy the applicable
requirements, we will take appropriate and reasonable steps to bring the policy
into compliance with such requirements and we reserve the right to restrict
policy transactions or modify your policy in order to do so.
Specifically this policy must meet the requirements of the "cash value
accumulation test" as specified in Code Section 7702.
Under the cash value accumulation test, there is no limit to the amount that may
be paid in premiums as long as there is enough death benefit in relation to
account value at all times. The death benefit at all times must be at least
equal to an actuarially determined factor, depending on the insured person's age
and sex at any point in time, multiplied by the account value. SEE APPENDIX A,
PAGE 140, FOR A TABLE OF THE CASH VALUE ACCUMULATION TEST FACTORS.
We will at all times assure that the policy meets the statutory definition which
qualifies the policy as life insurance for federal income tax purposes. In
addition, as long as the policy remains in force, increases in account value as
a result of interest or investment experience will not be subject to federal
income tax unless and until there is a distribution from the policy, such as a
partial withdrawal or loan. SEE TAX TREATMENT OF POLICY DEATH BENEFITS, PAGE 45.
DIVERSIFICATION REQUIREMENTS
In addition to meeting the Code Section 7702 tests, Code Section 817(h) requires
separate account investments, such as our separate account, to be adequately
diversified. The Treasury has issued regulations which set the standards for
measuring the adequacy of any diversification. To be adequately diversified,
each variable investment option must meet certain tests. If your variable life
policy is not adequately diversified under these regulations, it is not treated
as life insurance under Code Section 7702. You would then be subject to federal
income tax on your policy income as you earn it. Our variable investment
options' investment portfolios have promised they will meet the diversification
standards that apply to your policy.
In certain circumstances, you, as owner of a variable life insurance contract,
may be considered the owner for federal income tax purposes of the separate
account assets used to support your contract. Any income and gains from the
separate account assets are includable in the gross income from your policy
under these circumstances. The IRS has stated in published rulings that a
variable contract owner is considered the owner of separate account assets if
the contract owner has "indicia of ownership" in those assets. "Indicia of
ownership" includes the ability to exercise investment control over the assets.
Your ownership rights under your policy are similar to, but different in some
ways from those described
- --------------------------------------------------------------------------------
Corporate Benefits 44
<PAGE>
by the IRS in rulings in which it determined that policy owners are not owners
of separate account assets. For example, you have flexibility in allocating your
premium payments and in your policy values. These differences could result in
the IRS treating you as the owner of a pro rata share of the separate account
assets. We do not know what standards will be set forth in the future, if any,
in Treasury regulations or rulings. We reserve the right to modify your policy,
as necessary, to try to prevent you from being considered the owner of a pro
rata share of the separate account assets, or to otherwise qualify your policy
for favorable tax treatment.
The following discussion assumes that the policy will qualify as a life
insurance contract for federal income tax purposes.
TAX TREATMENT OF POLICY DEATH BENEFITS
We believe that the death benefit under a policy is generally excludable from
the gross income of the beneficiary(ies) under section 101(a)(1) of the Code.
However, there are exceptions to this general rule. Additionally, federal and
local transfer, estate inheritance, and other tax consequences of ownership or
receipt of policy proceeds depend on the circumstances of each policy owner or
beneficiary(ies). A tax adviser should be consulted about these consequences.
Generally, the policy owner will not be taxed on any of the policy cash value
until there is a distribution. When distributions from a policy occur, or when a
loan is taken from or secured by a policy, the tax consequences depend on
whether or not the policy is a "modified endowment contract."
Special rules also apply if you are subject to the alternative minimum tax. You
should consult a tax adviser if you are subject to the alternative minimum tax.
MODIFIED ENDOWMENT CONTRACTS
Under the Internal Revenue Code, certain life insurance contracts are classified
as "modified endowment contracts," and are given less favorable tax treatment
than other life insurance contracts. Due to the flexibility of the policies as
to premiums and benefits, the individual circumstances of each policy will
determine whether or not it is classified as a modified endowment contract. The
rules are too complex to be summarized here, but generally depend on the amount
of premiums we receive during the first seven policy years. Certain changes in a
policy after it is issued could also cause it to be classified as a modified
endowment contract. A current or prospective policy owner should consult with a
competent adviser to determine whether or not a policy transaction will cause
the policy to be classified as a modified endowment contract.
MULTIPLE POLICIES
All modified endowment contracts that are issued by us (or our affiliates) to
the same policy owner during any calendar year are treated as one modified
endowment contract for purposes of determining the amount includable in the
policy owner's income when a taxable distribution occurs.
DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM MODIFIED ENDOWMENT CONTRACTS
Once a policy is classified as a modified endowment contract, the following tax
rules apply both prospectively and to any distributions made in the prior two
years:
1. All distributions other than death benefits, including distributions
upon surrender and withdrawals, from a modified endowment contact will
be treated first as distributions of gain taxable as ordinary income
and as tax-free recovery of the policy owner's investment in the policy
only after all gain has been distributed.
2. Loan amounts taken from or secured by a policy classified as a modified
endowment contract are treated as distributions and taxed first as
distributions of gain taxable as ordinary income and as tax-free
recovery of the policy owner's investment in the policy only after all
gain has been distributed.
3. A 10% additional income tax penalty may be imposed on the distribution
amount subject to income tax. Consult a tax adviser to determine
whether or not you may be subject to this penalty tax.
- --------------------------------------------------------------------------------
Corporate Benefits 45
<PAGE>
DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM POLICIES THAT ARE NOT MODIFIED
ENDOWMENT CONTRACTS
Distributions other than death benefits from a policy that is not classified as
a modified endowment contract are generally treated first as a recovery of the
policy owner's investment in the policy. Only after the recovery of all
investment in the policy, is there taxable income. However, certain
distributions which must be made in order to enable the policy to continue to
qualify as a life insurance contract for federal income tax purposes, if policy
benefits are reduced during the first fifteen policy years, may be treated in
whole or in part as ordinary income subject to tax.
Loan amounts from or secured by a policy that is not a modified endowment
contract are generally not treated as distributions. Finally, neither
distributions from, nor loan amounts from or secured by, a policy that is not a
modified endowment contract are subject to the 10% additional income tax.
INVESTMENT IN THE POLICY
Your investment in the policy is generally the total of your aggregate premiums.
When a distribution is taken from the policy other than a policy loan, your
investment in the policy is reduced by the amount of the distribution that is
tax free.
POLICY LOANS
In general, interest on a policy loan will not be deductible. Moreover, the tax
consequences associated with a low cost loan such as the loan available in the
policy are uncertain. Before taking out a policy loan, you should consult a tax
adviser as to the tax consequences.
SECTION 1035 EXCHANGES
Code Section 1035 generally provides that no gain or loss shall be recognized on
the exchange of one life insurance policy for another life insurance policy, or
for an endowment or annuity contract. We accept 1035 exchanges with outstanding
loans. Special rules and procedures apply to Section 1035 exchanges. If you wish
to take advantage of Section 1035, you should consult your tax adviser.
TAX-EXEMPT POLICY OWNERS
Special rules may apply to a policy that is owned by a tax-exempt entity.
Tax-exempt entities should consult their tax adviser regarding the consequences
of purchasing and owning a policy. These consequences could include an effect on
the tax-exempt status of the entity and the possibility of the unrelated
business income tax.
POSSIBLE TAX LAW CHANGES
Although the likelihood of legislative action is uncertain, there is always the
possibility that the tax treatment of the policy could be changed by legislation
or otherwise. You should consult a tax adviser with respect to legislative
developments and their effect on the policy.
CHANGES TO COMPLY WITH THE LAW
So that your policy continues to qualify as life insurance under the Code, we
reserve the right to refuse to accept all or part of your premium payments, or
to change your death benefit. We may refuse to allow you to make partial
withdrawals that would cause your policy to fail to qualify as life insurance.
We also may:
o make changes to your policy or its riders; or
o take distributions from your policy to the degree that we deem
necessary to qualify your policy as life insurance for tax purposes.
If we make any change of this type, it applies the same way to all affected
policies. We will give you advance notice of this change.
The tax law limits the mortality charge used to calculate whether your policy
qualifies as life insurance for federal income tax purposes. We must base these
calculations on reasonable mortality charges expected to be paid. The Treasury
issued proposed regulations on what it considers reasonable mortality charges.
We believe that the charges used for your policy should meet the Treasury's
current requirement for "reasonableness." We reserve the right to make changes
to the mortality charges used in the calculation if future regulations have
standards
- --------------------------------------------------------------------------------
Corporate Benefits 46
<PAGE>
which make changes necessary in order to continue to qualify your policy as life
insurance for federal income tax purposes.
Additionally, assuming that you do not want your policy to be or to become a
modified endowment contract, we include a policy endorsement under which we have
the right to amend your policy, including riders. We do this to attempt to
enable your policy to continue to meet the seven-pay test for federal income tax
purposes. If the policy premium you pay is more than the seven-pay limit, we
have the right to remove any excess premium or to make any appropriate
adjustments to your policy's account value and death benefit. It is not clear,
however, whether we can take effective action pursuant to this endorsement under
all possible circumstances to prevent a policy that has exceeded the premium
limitation from being classified as a modified endowment contract.
Any increase in your death benefit will cause an increase in your cost of
insurance charges.
OTHER
Policy owners may use our policies in various arrangements, including:
o qualified plans;
o non-qualified deferred compensation or salary continuance plans;
o split dollar insurance plans;
o executive bonus plans;
o retiree medical benefit plans; and
o other plans.
The tax consequences of these plans may vary depending on the particular facts
and circumstances of each arrangement. If you want to use any of your policies
in this type of arrangement, you should consult a qualified tax adviser
regarding the tax issues of your particular arrangement.
In recent years, Congress has adopted new rules relating to life insurance owned
by businesses. Any business contemplating the purchase of a new policy or a
change in an existing policy should consult a tax adviser.
The IRS requires us to withhold income taxes from any portion of the amounts
individuals receive in a taxable transaction. We do not withhold income taxes if
you elect in writing not to have withholding apply. If the amount withheld for
you is insufficient to cover income taxes, you may have to pay income taxes and
possibly penalties later.
The transfer of the policy or designation of a beneficiary may have federal,
state, and/or local transfer and inheritance tax consequences, including the
imposition of gift, estate, and generation-skipping transfer taxes. For example,
the transfer of the policy to, or the designation as a beneficiary of, or the
payment of proceeds to a person who is assigned to a generation which is two or
more generations below the generation assignment of the policy owner may have
generation skipping transfer tax consequences under federal tax law. The
individual situation of each policy owner or beneficiary will determine the
extent, if any, to which federal, state, and local transfer and inheritance
taxes may be imposed and how ownership or receipt of policy proceeds will be
treated for purposes of federal, state and local estate, inheritance, generation
skipping and other taxes.
YOU SHOULD CONSULT QUALIFIED LEGAL OR TAX ADVISERS FOR COMPLETE INFORMATION ON
FEDERAL, STATE, LOCAL, AND OTHER TAX CONSIDERATIONS.
- --------------------------------------------------------------------------------
Corporate Benefits 47
<PAGE>
ILLUSTRATIONS OF DEATH BENEFITS, ACCOUNT VALUES, SURRENDER VALUES, AND
ACCUMULATED PREMIUMS
The following tables are intended to show how the policy works including how
benefits and values can vary over time. Each table compares these values with
total premiums we receive with interest. The policies illustrated use the
following assumptions:
Definition
Death of Life Stated Target
Smoker* Benefit Insurance Death Death
Gender Age Status Option Test Benefit Premium Benefit
- ------ --- ------ ------ ---- ------- ------- -------
Male 35 Non-smoker 1 CVAT $251,206 $10,000 $251,206
Male 35 Non-smoker 1 CVAT $125,603 $10,000 $251,206
Male 45 Non-smoker 1 CVAT $180,526 $10,000 $180,526
Male 45 Non-smoker 1 CVAT $90,263 $10,000 $180,526
Male 55 Non-smoker 1 CVAT $131,692 $10,000 $131,692
Male 55 Non-smoker 1 CVAT $65,846 $10,000 $131,692
* "Smoker" includes the use of cigarettes, cigars, pipes, chewing tobacco,
nicotine chewing gum or patch, snuff or any other tobacco or nicotine-based
product.
The tables show how death benefits, account values, and surrender values of a
hypothetical policy could vary over an extended period of time, assuming the
variable divisions had constant hypothetical gross annual investment returns of
0%, 6%, or 12% over the periods indicated in each table. Values would differ
from those shown in the tables if the annual investment returns were not
constant. The amounts shown would differ if we had used female, unisex or smoker
rates.
These illustrations assume there are no policy loans.
We illustrate premium payments as if they were made at the beginning of the
year. The third column of each table shows what would happen if an amount equal
to the assumed premiums earned interest, after taxes, of 5% compounded annually.
The net investment return on your policy is lower than the gross investment
return on the variable division as a result of the portfolio charge for
management fees and portfolio expenses. We show the effect of the net investment
return in the amounts for death benefits, account values and surrender values.
The tables reflect annual investment management fees of 0.78% of the portfolios'
aggregate average daily net assets. This hypothetical rate is a simple average
of the investment advisory fees applying to the investment portfolios for the
year ending December 31, 1998. We assume other portfolio expenses at the rate of
0.13% of the portfolios' average daily net assets. This is an average of all the
portfolios' other expenses for the year ending December 31, 1998, after any
absorption by investment portfolio managers has been made. The average of all
portfolios' total expenses is 0.91%.
Actual fees vary by portfolio. The portfolio fees and expenses used in the
illustrations are the net amounts shown after absorption of fees and expenses by
the portfolio's investment manager. Absent such absorption, the total average
investment management fees, average other portfolio expenses and the average of
all portfolios' total expenses used in the illustrations would have been higher
(0.78%, 0.82% and 1.60%, respectively). The tables
- --------------------------------------------------------------------------------
Corporate Benefits 48
<PAGE>
assume that the current expense reimbursement arrangements will continue.
However, they may not continue through 1999.
The effect of these portfolio charges and expenses results in a net rate of
return of:
o (0.91)% on a 0% gross rate of return;
o 5.09% on a 6% gross rate of return; and
o 11.09% on a 12% gross rate of return.
The tables assume that charges have been deducted including deductions from
premiums, cost of insurance rider charges, monthly deductions and annual
deferred sales charge, mortality and expense risk charge, administrative and
sales charges. The tables show charges at our current rates. The tables also
show charges at the maximum rates we guarantee in our policies. SEE MONTHLY
DEDUCTIONS FROM YOUR ACCOUNT VALUE, PAGE 41. The tables reflect that we do not
currently charge against the separate account for state or federal taxes. If we
charge for the taxes in the future, it will take a higher gross rate of return
than the rates shown to produce the same death benefits, account values, and
surrender values.
If we are asked to do so, we will give you a comparable personal illustration
based on:
o each insured person's age and gender;
o standard premium class assumptions;
o initial stated death benefit;
o the chosen death benefit option;
o scheduled premiums consistent with your policy form; and
o special features elected on your policy.
For individual policies, at issue we deliver an individualized illustration
showing the scheduled premium you chose and the insured person's actual risk
class. This Corporate Benefits policy is issued only to groups. For this policy,
we deliver an illustration similar to the individualized illustration. However,
this illustration shows a single life scheduled premium and risk class that is
representative of the particular group covered by this policy. We base these
hypothetical future benefits on both guaranteed and current cost factor
assumptions and actual account value.
- --------------------------------------------------------------------------------
Corporate Benefits 49
<PAGE>
PROSPECT: INSURED PERSON'S NAME
MALE 35 NON-SMOKER PRESENTED BY:
SECURITY LIFE
CORPORATE BENEFITS VARIABLE UNIVERSAL LIFE
STATED DEATH BENEFIT: $251,206 DEATH BENEFIT OPTION 1
ANNUAL PREMIUM: $10,000
CASH VALUE ACCUMULATION TEST
SUMMARY PAGE
ASSUMING GUARANTEED CHARGES
Assuming Hypothetical Gross Investment Return of:
<TABLE>
<CAPTION>
-----------0.00%-------- ---------12.00%--------- -----------6.00%----------
PREMIUM CASH CASH CASH
ACCUMULATED ACCOUNT SURR DEATH ACCOUNT SURR DEATH ACCOUNT SURR DEATH
YEAR PREMIUMS AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10000 10500 8646 8646 251206 9731 9731 251206 9188 9188 251206
2 10000 21525 17206 17206 251206 20531 20531 251206 18836 18836 251206
3 10000 33101 25481 25481 251206 32300 32300 251206 28756 28756 251206
4 10000 45256 33472 33472 251206 45145 45145 251206 38962 38962 251206
5 10000 58019 41177 41177 251206 59186 59186 251206 49466 49466 251206
6 10000 71420 48722 48722 251206 74695 74695 256876 60416 60416 251206
7 10000 85491 56105 56105 251206 91706 91706 305380 71832 71832 251206
8 - 89766 53853 53853 251206 99834 99834 322063 73694 73694 251206
9 - 94254 51754 51754 251206 108962 108962 340505 75807 75807 251206
10 - 98967 49781 49781 251206 119159 119159 360813 78160 78160 251206
15 - 126309 40779 40779 251206 189104 189104 491480 93044 93044 251206
20 - 161206 29770 29770 251206 299375 299375 672396 110947 110947 251206
25 - 205744 13798 13798 251206 468796 468796 919778 131192 131192 257399
30 - 262588 - - - 725522 725522 1256604 153523 153523 265901
AGE 65 - 275717 - - - 790314 790314 1337212 158143 158143 267577
</TABLE>
The expense charges and cost of insurance rates will never be greater than those
which were used to calculate the above values.
The hypothetical gross rates of return shown are illustrative only and should
not be deemed as a representation of past or future investment results. Actual
investment results may be more or less than those shown and will depend on a
number of factors, including the investment allocations made to the variable
investment options of the separate account and the guaranteed interest division
and the investment experience of the investment options. No representation can
be made that these hypothetical gross investment returns can be achieved for any
one year or sustained over any period of time.
The death benefit, account value and cash surrender value for a policy would be
different from those shown if the actual gross annual rates of return averaged
0.00%, 12.00% and 6.00% over a period of years but varied above or below that
average during the period. They would also be different if premiums were paid in
a different frequency than shown.
- --------------------------------------------------------------------------------
Corporate Benefits 50
<PAGE>
PROSPECT: INSURED PERSON'S NAME
MALE 35 NON-SMOKER PRESENTED BY:
SECURITY LIFE
CORPORATE BENEFITS VARIABLE UNIVERSAL LIFE
STATED DEATH BENEFIT: $251,206 DEATH BENEFIT OPTION 1
ANNUAL PREMIUM: $10,000
CASH VALUE ACCUMULATION TEST
SUMMARY PAGE
ASSUMING CURRENT CHARGES
Assuming Hypothetical Gross Investment Return of:
<TABLE>
<CAPTION>
-----------0.00%-------- ---------12.00%--------- -----------6.00%----------
PREMIUM CASH CASH CASH
ACCUMULATED ACCOUNT SURR DEATH ACCOUNT SURR DEATH ACCOUNT SURR DEATH
YEAR PREMIUMS AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10000 10500 9040 9040 251206 10149 10149 251206 9594 9594 251206
2 10000 21525 18002 18002 251206 21424 21424 251206 19680 19680 251206
3 10000 33101 26691 26691 251206 33731 33731 251206 30074 30074 251206
4 10000 45256 35110 35110 251206 47182 47182 251206 40791 40791 251206
5 10000 58019 43261 43261 251206 61903 61903 251206 51848 51848 251206
6 10000 71420 51271 51271 251206 78170 78170 268826 63392 63392 251206
7 10000 85491 59138 59138 251206 96120 96120 320079 75447 75447 251238
8 - 89766 57413 57413 251206 105357 105357 339883 78013 78013 251669
9 - 94254 55890 55890 251206 115795 115795 361860 80903 80903 252822
10 - 98967 54540 54540 251206 127530 127530 386162 84106 84106 254672
15 - 126309 49471 49471 251206 209968 209968 545708 104455 104455 271479
20 - 161206 44363 44363 251206 346271 346271 777724 130277 130277 292602
25 - 205744 37995 37995 251206 568847 568847 1116078 161866 161866 317581
30 - 262588 28827 28827 251206 928214 928214 1607666 199796 199796 346047
AGE 65 - 275717 26466 26466 251206 1022742 1022742 1730480 208195 208195 352266
</TABLE>
The current cost of insurance rates are subject to change. Account values will
vary from those illustrated if actual rates differ from those assumed. Current
mortality charge rates are based on current mortality experience and are not
dependent upon future improvements in underlying mortality.
The hypothetical gross rates of return shown are illustrative only and should
not be deemed as a representation of past or future investment results. Actual
investment results and policy charges may be more or less than those shown and
will depend on a number of factors, including the investment allocations made to
the variable investment options of the separate account and the guaranteed
interest division and the investment experience of the investment options. No
representation can be made that these hypothetical gross investments returns can
be achieved for any one year or sustained over any period of time.
The death benefit, account value and cash surrender value for a policy would be
different from those shown if the actual gross annual rates of return averaged
0.00%, 12.00% and 6.00% over a period of years but varied above or below that
average during the period. They would also be different if premiums were paid in
a different frequency than shown.
- --------------------------------------------------------------------------------
Corporate Benefits 51
<PAGE>
PROSPECT: INSURED PERSON'S NAME
MALE 35 NON-SMOKER PRESENTED BY:
SECURITY LIFE
CORPORATE BENEFITS VARIABLE UNIVERSAL LIFE
STATED DEATH BENEFIT: $125,603 DEATH BENEFIT OPTION 1
INITIAL ADJUSTABLE TERM RIDER: $125,603 ANNUAL PREMIUM: $10,000
CASH VALUE ACCUMULATION TEST
SUMMARY PAGE
ASSUMING GUARANTEED CHARGES
Assuming Hypothetical Gross Investment Return of:
<TABLE>
<CAPTION>
-----------0.00%-------- ---------12.00%--------- -----------6.00%----------
PREMIUM CASH CASH CASH
ACCUMULATED ACCOUNT SURR DEATH ACCOUNT SURR DEATH ACCOUNT SURR DEATH
YEAR PREMIUMS AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10000 10500 8876 8876 251206 9993 9993 251206 9434 9434 251206
2 10000 21525 17413 17413 251206 20803 20803 251206 19074 19074 251206
3 10000 33101 25747 25747 251206 32674 32674 251206 29073 29073 251206
4 10000 45256 33877 33877 251206 45748 45748 251206 39459 39459 251206
5 10000 58019 41818 41818 251206 60167 60167 251206 50262 50262 251206
6 10000 71420 49634 49634 251206 76153 76153 261891 61574 61574 251206
7 10000 85491 57321 57321 251206 93709 93709 312051 73422 73422 251206
8 - 89766 55381 55381 251206 102464 102464 330547 75764 75764 251206
9 - 94254 53528 53528 251206 112225 112225 350702 78331 78331 251206
10 - 98967 51693 51693 251206 123021 123021 372507 81069 81069 251206
15 - 126309 42152 42152 251206 195743 195743 508736 97174 97174 252556
20 - 161206 29851 29851 251206 309902 309902 696039 116285 116285 261176
25 - 205744 11874 11874 251206 485297 485297 952152 137692 137692 270152
30 - 262588 - - 251206 751075 751075 1300861 161149 161149 279110
AGE 65 - 275717 - - 251206 818152 818152 1384313 166002 166002 280875
</TABLE>
The expense charges and cost of insurance rates will never be greater than those
which were used to calculate the above values.
The hypothetical gross rates of return shown are illustrative only and should
not be deemed as a representation of past or future investment results. Actual
investment results may be more or less than those shown and will depend on a
number of factors, including the investment allocations made to the variable
investment options of the separate account and the guaranteed interest division
and the investment experience of the investment options. No representation can
be made that these hypothetical gross investment returns can be achieved for any
one year or sustained over any period of time.
The death benefit, account value and cash surrender value for a policy would be
different from those shown if the actual gross annual rates of return averaged
0.00%, 12.00% and 6.00% over a period of years but varied above or below that
average during the period. They would also be different if premiums were paid in
a different frequency than shown.
- --------------------------------------------------------------------------------
Corporate Benefits 52
<PAGE>
PROSPECT: INSURED PERSON'S NAME
MALE 35 NON-SMOKER PRESENTED BY:
SECURITY LIFE
CORPORATE BENEFITS VARIABLE UNIVERSAL LIFE
STATED DEATH BENEFIT: $125,603 DEATH BENEFIT OPTION 1
INITIAL ADJUSTABLE TERM RIDER: $125,603 ANNUAL PREMIUM: $10,000
CASH VALUE ACCUMULATION TEST
SUMMARY PAGE
ASSUMING CURRENT CHARGES
Assuming Hypothetical Gross Investment Return of:
<TABLE>
<CAPTION>
-----------0.00%-------- ---------12.00%--------- -----------6.00%----------
PREMIUM CASH CASH CASH
ACCUMULATED ACCOUNT SURR DEATH ACCOUNT SURR DEATH ACCOUNT SURR DEATH
YEAR PREMIUMS AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10000 10500 9340 9340 251206 10486 10486 251206 9913 9913 251206
2 10000 21525 18353 18353 251206 21857 21857 251206 20070 20070 251206
3 10000 33101 27178 27178 251206 34367 34367 251206 30631 30631 251206
4 10000 45256 35817 35817 251206 48140 48140 251206 41615 41615 251206
5 10000 58019 44273 44273 251206 63314 63314 251206 53043 53043 251206
6 10000 71420 52608 52608 251206 80106 80106 275485 65002 65002 251206
7 10000 85491 60821 60821 251206 98665 98665 328553 77515 77515 258125
8 - 89766 59464 59464 251206 108603 108603 350355 80588 80588 259977
9 - 94254 58255 58255 251206 119762 119762 374255 83957 83957 262364
10 - 98967 57130 57130 251206 132197 132197 400293 87567 87567 265154
15 - 126309 52249 52249 251206 218184 218184 567061 109183 109183 283768
20 - 161206 47033 47033 251206 359839 359839 808198 136192 136192 305888
25 - 205744 40578 40578 251206 591155 591155 1159845 169234 169234 332037
30 - 262588 31359 31359 251206 964632 964632 1670743 208909 208909 361830
AGE 65 - 275717 28994 28994 251206 1062873 1062873 1798380 217694 217694 368338
</TABLE>
The current cost of insurance rates are subject to change. Account values will
vary from those illustrated if actual rates differ from those assumed. Current
mortality charge rates are based on current mortality experience and are not
dependent upon future improvements in underlying mortality.
The hypothetical gross rates of return shown are illustrative only and should
not be deemed as a representation of past or future investment results. Actual
investment results and policy charges may be more or less than those shown and
will depend on a number of factors, including the investment allocations made to
the variable investment options of the separate account and the guaranteed
interest division and the investment experience of the investment options. No
representation can be made that these hypothetical gross investments returns can
be achieved for any one year or sustained over any period of time.
The death benefit, account value and cash surrender value for a policy would be
different from those shown if the actual gross annual rates of return averaged
0.00%, 12.00% and 6.00% over a period of years but varied above or below that
average during the period. They would also be different if premiums were paid in
a different frequency than shown.
- --------------------------------------------------------------------------------
Corporate Benefits 53
<PAGE>
PROSPECT: INSURED PERSON'S NAME
MALE 45 NON-SMOKER PRESENTED BY:
SECURITY LIFE
CORPORATE BENEFITS VARIABLE UNIVERSAL LIFE
STATED DEATH BENEFIT: $180,526 DEATH BENEFIT OPTION 1
ANNUAL PREMIUM: $10,000
CASH VALUE ACCUMULATION TEST
SUMMARY PAGE
ASSUMING GUARANTEED CHARGES
Assuming Hypothetical Gross Investment Return of:
<TABLE>
<CAPTION>
-----------0.00%-------- ---------12.00%--------- -----------6.00%----------
PREMIUM CASH CASH CASH
ACCUMULATED ACCOUNT SURR DEATH ACCOUNT SURR DEATH ACCOUNT SURR DEATH
YEAR PREMIUMS AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10000 10500 8378 8378 180526 9447 9447 180526 8912 8912 180526
2 10000 21525 16663 16663 180526 19926 19926 180526 18262 18262 180526
3 10000 33101 24661 24661 180526 31343 31343 180526 27869 27869 180526
4 10000 45256 32377 32377 180526 43812 43812 180526 37753 37753 180526
5 10000 58019 39812 39812 180526 57457 57457 180526 47929 47929 180526
6 10000 71420 47095 47095 180526 72564 72564 183006 58553 58553 180526
7 10000 85491 54222 54222 180526 89102 89102 218211 69649 69649 180526
8 - 89766 51674 51674 180526 96676 96676 229896 71155 71155 180526
9 - 94254 49237 49237 180526 105154 105154 243011 72874 72874 180526
10 - 98967 46868 46868 180526 114583 114583 257352 74784 74784 180526
15 - 126309 34840 34840 180526 178231 178231 349689 86705 86705 180526
20 - 161206 18061 18061 180526 275554 275554 477260 100180 100180 180526
25 - 205744 - - - 419906 419906 650854 114168 114168 180526
30 - 262588 - - - 629963 629963 885728 128550 128550 180741
AGE 65 - 169267 13634 13634 180526 300116 300116 507796 102937 102937 180526
</TABLE>
The expense charges and cost of insurance rates will never be greater than those
which were used to calculate the above values.
The hypothetical gross rates of return shown are illustrative only and should
not be deemed as a representation of past or future investment results. Actual
investment results may be more or less than those shown and will depend on a
number of factors, including the investment allocations made to the variable
investment options of the separate account and the guaranteed interest division
and the investment experience of the investment options. No representation can
be made that these hypothetical gross investment returns can be achieved for any
one year or sustained over any period of time.
The death benefit, account value and cash surrender value for a policy would be
different from those shown if the actual gross annual rates of return averaged
0.00%, 12.00% and 6.00% over a period of years but varied above or below that
average during the period. They would also be different if premiums were paid in
a different frequency than shown.
- --------------------------------------------------------------------------------
Corporate Benefits 54
<PAGE>
PROSPECT: INSURED PERSON'S NAME
MALE 45 NON-SMOKER PRESENTED BY:
SECURITY LIFE
CORPORATE BENEFITS VARIABLE UNIVERSAL LIFE
STATED DEATH BENEFIT: $180,526 DEATH BENEFIT OPTION 1
ANNUAL PREMIUM: $10,000
CASH VALUE ACCUMULATION TEST
SUMMARY PAGE
ASSUMING CURRENT CHARGES
Assuming Hypothetical Gross Investment Return of:
<TABLE>
<CAPTION>
-----------0.00%-------- ---------12.00%--------- -----------6.00%----------
PREMIUM CASH CASH CASH
ACCUMULATED ACCOUNT SURR DEATH ACCOUNT SURR DEATH ACCOUNT SURR DEATH
YEAR PREMIUMS AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10000 10500 9009 9009 180526 10116 10116 180526 9562 9562 180526
2 10000 21525 17925 17925 180526 21339 21339 180526 19599 19599 180526
3 10000 33101 26557 26557 180526 33578 33578 180526 29930 29930 180526
4 10000 45256 34908 34908 180526 46946 46946 180526 40572 40572 180526
5 10000 58019 42983 42983 180526 61573 61573 180526 51544 51544 180526
6 10000 71420 50910 50910 180526 77729 77729 196032 62996 62996 180526
7 10000 85491 58689 58689 180526 95528 95528 233949 74951 74951 183555
8 - 89766 56860 56860 180526 104579 104579 248690 77403 77403 184065
9 - 94254 55221 55221 180526 114792 114792 265285 80168 80168 185267
10 - 98967 53740 53740 180526 126257 126257 283574 83230 83230 186935
15 - 126309 47695 47695 180526 206255 206255 404673 102560 102560 201223
20 - 161206 40527 40527 180526 336259 336259 582400 126446 126446 219004
25 - 205744 30022 30022 180526 543840 543840 842952 154662 154662 239726
30 - 262588 12712 12712 180526 870627 870627 1224101 187277 187277 263312
AGE 65 - 169267 38766 38766 180526 370455 370455 626810 131734 131734 222894
</TABLE>
The current cost of insurance rates are subject to change. Account values will
vary from those illustrated if actual rates differ from those assumed. Current
mortality charge rates are based on current mortality experience and are not
dependent upon future improvements in underlying mortality.
The hypothetical gross rates of return shown are illustrative only and should
not be deemed as a representation of past or future investment results. Actual
investment results and policy charges may be more or less than those shown and
will depend on a number of factors, including the investment allocations made to
the variable investment options of the separate account and the guaranteed
interest division and the investment experience of the investment options. No
representation can be made that these hypothetical gross investments returns can
be achieved for any one year or sustained over any period of time.
The death benefit, account value and cash surrender value for a policy would be
different from those shown if the actual gross annual rates of return averaged
0.00%, 12.00% and 6.00% over a period of years but varied above or below that
average during the period. They would also be different if premiums were paid in
a different frequency than shown.
- --------------------------------------------------------------------------------
Corporate Benefits 55
<PAGE>
PROSPECT: INSURED PERSON'S NAME
MALE 45 NON-SMOKER PRESENTED BY:
SECURITY LIFE
CORPORATE BENEFITS VARIABLE UNIVERSAL LIFE
STATED DEATH BENEFIT: $90,263 DEATH BENEFIT OPTION 1
INITIAL ADJUSTABLE TERM RIDER: $90,263 ANNUAL PREMIUM: $10,000
CASH VALUE ACCUMULATION TEST
SUMMARY PAGE
ASSUMING GUARANTEED CHARGES
Assuming Hypothetical Gross Investment Return of:
<TABLE>
<CAPTION>
-----------0.00%-------- ---------12.00%--------- -----------6.00%----------
PREMIUM CASH CASH CASH
ACCUMULATED ACCOUNT SURR DEATH ACCOUNT SURR DEATH ACCOUNT SURR DEATH
YEAR PREMIUMS AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10000 10500 8573 8573 180526 9671 9671 180526 9122 9122 180526
2 10000 21525 16794 16794 180526 20113 20113 180526 18420 18420 180526
3 10000 33101 24807 24807 180526 31575 31575 180526 28056 28056 180526
4 10000 45256 32616 32616 180526 44217 44217 180526 38067 38067 180526
5 10000 58019 40245 40245 180526 58198 58198 180526 48500 48500 180526
6 10000 71420 47764 47764 180526 73756 73756 186012 59453 59453 180526
7 10000 85491 55170 55170 180526 90808 90808 222388 70965 70965 180526
8 - 89766 52900 52900 180526 98971 98971 235354 72934 72934 180526
9 - 94254 50662 50662 180526 108040 108040 249680 75090 75090 180526
10 - 98967 48372 48372 180526 118018 118018 265068 77371 77371 180526
15 - 126309 35278 35278 180526 184073 184073 361151 90460 90460 180526
20 - 161206 16248 16248 180526 284601 284601 492930 105333 105333 182437
25 - 205744 - - - 433707 433707 672246 121314 121314 188037
30 - 262588 - - - 650683 650683 914860 137595 137595 193459
AGE 65 - 169267 11210 11210 180526 309972 309972 524472 108459 108459 183513
</TABLE>
The expense charges and cost of insurance rates will never be greater than those
which were used to calculate the above values.
The hypothetical gross rates of return shown are illustrative only and should
not be deemed as a representation of past or future investment results. Actual
investment results may be more or less than those shown and will depend on a
number of factors, including the investment allocations made to the variable
investment options of the separate account and the guaranteed interest division
and the investment experience of the investment options. No representation can
be made that these hypothetical gross investment returns can be achieved for any
one year or sustained over any period of time.
The death benefit, account value and cash surrender value for a policy would be
different from those shown if the actual gross annual rates of return averaged
0.00%, 12.00% and 6.00% over a period of years but varied above or below that
average during the period. They would also be different if premiums were paid in
a different frequency than shown.
- --------------------------------------------------------------------------------
Corporate Benefits 56
<PAGE>
PROSPECT: INSURED PERSON'S NAME
MALE 45 NON-SMOKER PRESENTED BY:
SECURITY LIFE
CORPORATE BENEFITS VARIABLE UNIVERSAL LIFE
STATED DEATH BENEFIT: $90,263 DEATH BENEFIT OPTION 1
INITIAL ADJUSTABLE TERM RIDER: $90,263 ANNUAL PREMIUM: $10,000
CASH VALUE ACCUMULATION TEST
SUMMARY PAGE
ASSUMING CURRENT CHARGES
Assuming Hypothetical Gross Investment Return of:
<TABLE>
<CAPTION>
-----------0.00%-------- ---------12.00%--------- -----------6.00%----------
PREMIUM CASH CASH CASH
ACCUMULATED ACCOUNT SURR DEATH ACCOUNT SURR DEATH ACCOUNT SURR DEATH
YEAR PREMIUMS AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10000 10500 9308 9308 180526 10452 10452 180526 9880 9880 180526
2 10000 21525 18274 18274 180526 21770 21770 180526 19987 19987 180526
3 10000 33101 27040 27040 180526 34211 34211 180526 30485 30485 180526
4 10000 45256 35612 35612 180526 47901 47901 180526 41393 41393 180526
5 10000 58019 43991 43991 180526 62980 62980 180526 52736 52736 180526
6 10000 71420 52244 52244 180526 79659 79659 200900 64602 64602 180526
7 10000 85491 60371 60371 180526 98064 98064 240158 77014 77014 188608
8 - 89766 58912 58912 180526 107811 107811 256375 79970 79970 190168
9 - 94254 57590 57590 180526 118738 118738 274404 83207 83207 192290
10 - 98967 56337 56337 180526 130895 130895 293991 86670 86670 194661
15 - 126309 50505 50505 180526 214361 214361 420577 107223 107223 210371
20 - 161206 43276 43276 180526 349493 349493 605321 132213 132213 228992
25 - 205744 32774 32774 180526 565262 565262 876156 161734 161734 250687
30 - 262588 15578 15578 180526 904939 904939 1272344 195859 195859 275377
AGE 65 - 169267 41510 41510 180526 385038 385038 651484 137746 137746 233065
</TABLE>
The current cost of insurance rates are subject to change. Account values will
vary from those illustrated if actual rates differ from those assumed. Current
mortality charge rates are based on current mortality experience and are not
dependent upon future improvements in underlying mortality.
The hypothetical gross rates of return shown are illustrative only and should
not be deemed as a representation of past or future investment results. Actual
investment results and policy charges may be more or less than those shown and
will depend on a number of factors, including the investment allocations made to
the variable investment options of the separate account and the guaranteed
interest division and the investment experience of the investment options. No
representation can be made that these hypothetical gross investments returns can
be achieved for any one year or sustained over any period of time.
The death benefit, account value and cash surrender value for a policy would be
different from those shown if the actual gross annual rates of return averaged
0.00%, 12.00% and 6.00% over a period of years but varied above or below that
average during the period. They would also be different if premiums were paid in
a different frequency than shown.
- --------------------------------------------------------------------------------
Corporate Benefits 57
<PAGE>
PROSPECT: INSURED PERSON'S NAME
MALE 55 NON-SMOKER PRESENTED BY:
SECURITY LIFE
CORPORATE BENEFITS VARIABLE UNIVERSAL LIFE
STATED DEATH BENEFIT: $131,692 DEATH BENEFIT OPTION 1
ANNUAL PREMIUM: $10,000
CASH VALUE ACCUMULATION TEST
SUMMARY PAGE
ASSUMING GUARANTEED CHARGES
Assuming Hypothetical Gross Investment Return of:
<TABLE>
<CAPTION>
-----------0.00%-------- ---------12.00%--------- -----------6.00%----------
PREMIUM CASH CASH CASH
ACCUMULATED ACCOUNT SURR DEATH ACCOUNT SURR DEATH ACCOUNT SURR DEATH
YEAR PREMIUMS AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10000 10500 7875 7875 131692 8914 8914 131692 8394 8394 131692
2 10000 21525 15652 15652 131692 18803 18803 131692 17195 17195 131692
3 10000 33101 23146 23146 131692 29584 29584 131692 26235 26235 131692
4 10000 45256 30365 30365 131692 41383 41383 131692 35540 35540 131692
5 10000 58019 37316 37316 131692 54346 54346 131692 45140 45140 131692
6 10000 71420 44129 44129 131692 68784 68784 131692 55201 55201 131692
7 10000 85491 50809 50809 131692 84569 84569 157637 65771 65771 131692
8 - 89766 47734 47734 131692 91274 91274 165936 66693 66693 131692
9 - 94254 44674 44674 131692 98751 98751 175184 67767 67767 131692
10 - 98967 41576 41576 131692 107029 107029 185375 68968 68968 131692
15 - 126309 23590 23590 131692 161929 161929 250990 76207 76207 131692
20 - 161206 - - - 242661 242661 341181 82212 82212 131692
25 - 205744 - - - 356652 356652 463291 82847 82847 131692
30 - 262588 - - - 516089 516089 628596 68762 68762 131692
AGE 65 - 103915 38406 38406 131692 116169 116169 196558 70297 70297 131692
</TABLE>
The expense charges and cost of insurance rates will never be greater than those
which were used to calculate the above values.
The hypothetical gross rates of return shown are illustrative only and should
not be deemed as a representation of past or future investment results. Actual
investment results may be more or less than those shown and will depend on a
number of factors, including the investment allocations made to the variable
investment options of the separate account and the guaranteed interest division
and the investment experience of the investment options. No representation can
be made that these hypothetical gross investment returns can be achieved for any
one year or sustained over any period of time.
The death benefit, account value and cash surrender value for a policy would be
different from those shown if the actual gross annual rates of return averaged
0.00%, 12.00% and 6.00% over a period of years but varied above or below that
average during the period. They would also be different if premiums were paid in
a different frequency than shown.
- --------------------------------------------------------------------------------
Corporate Benefits 58
<PAGE>
PROSPECT: INSURED PERSON'S NAME
MALE 55 NON-SMOKER PRESENTED BY:
SECURITY LIFE
CORPORATE BENEFITS VARIABLE UNIVERSAL LIFE
STATED DEATH BENEFIT: $131,692 DEATH BENEFIT OPTION 1
ANNUAL PREMIUM: $10,000
CASH VALUE ACCUMULATION TEST
SUMMARY PAGE
ASSUMING CURRENT CHARGES
Assuming Hypothetical Gross Investment Return of:
<TABLE>
<CAPTION>
-----------0.00%-------- ---------12.00%--------- -----------6.00%----------
PREMIUM CASH CASH CASH
ACCUMULATED ACCOUNT SURR DEATH ACCOUNT SURR DEATH ACCOUNT SURR DEATH
YEAR PREMIUMS AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10000 10500 8854 8854 131692 9953 9953 131692 9403 9403 131692
2 10000 21525 17619 17619 131692 20998 20998 131692 19275 19275 131692
3 10000 33101 26100 26100 131692 33047 33047 131692 29437 29437 131692
4 10000 45256 34299 34299 131692 46211 46211 131692 39902 39902 131692
5 10000 58019 42218 42218 131692 60625 60625 131692 50692 50692 131692
6 10000 71420 49986 49986 131692 76546 76546 146356 61960 61960 131692
7 10000 85491 57608 57608 131692 94038 94038 175288 73729 73729 137430
8 - 89766 55591 55591 131692 102716 102716 186738 75968 75968 138110
9 - 94254 53725 53725 131692 112476 112476 199532 78489 78489 139240
10 - 98967 51977 51977 131692 123393 123393 213717 81276 81276 140770
15 - 126309 43763 43763 131692 198571 198571 307785 98646 98646 152902
20 - 161206 32004 32004 131692 317597 317597 446542 119305 119305 167743
25 - 205744 12724 12724 131692 503646 503646 654237 143066 143066 185842
30 - 262588 - - - 791826 791826 964444 170105 170105 207188
AGE 65 - 103915 50334 50334 131692 135578 135578 229398 84337 84337 142697
</TABLE>
The current cost of insurance rates are subject to change. Account values will
vary from those illustrated if actual rates differ from those assumed. Current
mortality charge rates are based on current mortality experience and are not
dependent upon future improvements in underlying mortality.
The hypothetical gross rates of return shown are illustrative only and should
not be deemed as a representation of past or future investment results. Actual
investment results and policy charges may be more or less than those shown and
will depend on a number of factors, including the investment allocations made to
the variable investment options of the separate account and the guaranteed
interest division and the investment experience of the investment options. No
representation can be made that these hypothetical gross investments returns can
be achieved for any one year or sustained over any period of time.
The death benefit, account value and cash surrender value for a policy would be
different from those shown if the actual gross annual rates of return averaged
0.00%, 12.00% and 6.00% over a period of years but varied above or below that
average during the period. They would also be different if premiums were paid in
a different frequency than shown.
- --------------------------------------------------------------------------------
Corporate Benefits 59
<PAGE>
PROSPECT: INSURED PERSON'S NAME
MALE 55 NON-SMOKER PRESENTED BY:
SECURITY LIFE
CORPORATE BENEFITS VARIABLE UNIVERSAL LIFE
STATED DEATH BENEFIT: $65,846 DEATH BENEFIT OPTION 1
INITIAL ADJUSTABLE TERM RIDER: $65,846 ANNUAL PREMIUM: $10,000
CASH VALUE ACCUMULATION TEST
SUMMARY PAGE
ASSUMING GUARANTEED CHARGES
Assuming Hypothetical Gross Investment Return of:
<TABLE>
<CAPTION>
-----------0.00%-------- ---------12.00%--------- -----------6.00%----------
PREMIUM CASH CASH CASH
ACCUMULATED ACCOUNT SURR DEATH ACCOUNT SURR DEATH ACCOUNT SURR DEATH
YEAR PREMIUMS AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10000 10500 8000 8000 131692 9065 9065 131692 8532 8532 131692
2 10000 21525 15637 15637 131692 18824 18824 131692 17197 17197 131692
3 10000 33101 23061 23061 131692 29541 29541 131692 26168 26168 131692
4 10000 45256 30278 30278 131692 41399 41399 131692 35494 35494 131692
5 10000 58019 37332 37332 131692 54601 54601 131692 45255 45255 131692
6 10000 71420 44302 44302 131692 69429 69429 132749 55571 55571 131692
7 10000 85491 51196 51196 131692 85669 85669 159687 66508 66508 131692
8 - 89766 48311 48311 131692 92897 92897 168888 67844 67844 131692
9 - 94254 45337 45337 131692 100890 100890 178979 69303 69303 131692
10 - 98967 42170 42170 131692 109634 109634 189886 70820 70820 131692
15 - 126309 21915 21915 131692 166349 166349 257842 78870 78870 131692
20 - 161206 - - - 249297 249297 350511 85621 85621 131692
25 - 205744 - - - 366418 366418 475976 87160 87160 131692
30 - 262588 - - - 530231 530231 645822 72050 72050 131692
AGE 65 - 103915 38764 38764 131692 119184 119184 201659 72392 72392 131692
</TABLE>
The expense charges and cost of insurance rates will never be greater than those
which were used to calculate the above values.
The hypothetical gross rates of return shown are illustrative only and should
not be deemed as a representation of past or future investment results. Actual
investment results may be more or less than those shown and will depend on a
number of factors, including the investment allocations made to the variable
investment options of the separate account and the guaranteed interest division
and the investment experience of the investment options. No representation can
be made that these hypothetical gross investment returns can be achieved for any
one year or sustained over any period of time.
The death benefit, account value and cash surrender value for a policy would be
different from those shown if the actual gross annual rates of return averaged
0.00%, 12.00% and 6.00% over a period of years but varied above or below that
average during the period. They would also be different if premiums were paid in
a different frequency than shown.
- --------------------------------------------------------------------------------
Corporate Benefits 60
<PAGE>
PROSPECT: INSURED PERSON'S NAME
MALE 55 NON-SMOKER PRESENTED BY:
SECURITY LIFE
CORPORATE BENEFITS VARIABLE UNIVERSAL LIFE
STATED DEATH BENEFIT: $65,846 DEATH BENEFIT OPTION 1
INITIAL ADJUSTABLE TERM RIDER: $65,846 ANNUAL PREMIUM: $10,000
CASH VALUE ACCUMULATION TEST
SUMMARY PAGE
ASSUMING CURRENT CHARGES
Assuming Hypothetical Gross Investment Return of:
<TABLE>
<CAPTION>
-----------0.00%-------- ---------12.00%--------- -----------6.00%----------
PREMIUM CASH CASH CASH
ACCUMULATED ACCOUNT SURR DEATH ACCOUNT SURR DEATH ACCOUNT SURR DEATH
YEAR PREMIUMS AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10000 10500 9153 9153 131692 10288 10288 131692 9720 9720 131692
2 10000 21525 17966 17966 131692 21428 21428 131692 19663 19663 131692
3 10000 33101 26583 26583 131692 33679 33679 131692 29991 29991 131692
4 10000 45256 35002 35002 131692 47166 47166 131692 40723 40723 131692
5 10000 58019 43227 43227 131692 62037 62037 131692 51886 51886 131692
6 10000 71420 51325 51325 131692 78477 78477 150048 63575 63575 131692
7 10000 85491 59301 59301 131692 96569 96569 180005 75793 75793 141277
8 - 89766 57660 57660 131692 105937 105937 192593 78527 78527 142762
9 - 94254 56122 56122 131692 116400 116400 206494 81512 81512 144601
10 - 98967 54614 54614 131692 127996 127996 221689 84689 84689 146682
15 - 126309 46710 46710 131692 206501 206501 320077 103208 103208 159973
20 - 161206 35076 35076 131692 330299 330299 464401 124841 124841 175526
25 - 205744 16123 16123 131692 523808 523808 680426 149722 149722 194489
30 - 262588 - - - 823542 823542 1003074 178038 178038 216851
AGE 65 - 103915 53127 53127 131692 140831 140831 238285 88065 88065 149006
</TABLE>
The current cost of insurance rates are subject to change. Account values will
vary from those illustrated if actual rates differ from those assumed. Current
mortality charge rates are based on current mortality experience and are not
dependent upon future improvements in underlying mortality.
The hypothetical gross rates of return shown are illustrative only and should
not be deemed as a representation of past or future investment results. Actual
investment results and policy charges may be more or less than those shown and
will depend on a number of factors, including the investment allocations made to
the variable investment options of the separate account and the guaranteed
interest division and the investment experience of the investment options. No
representation can be made that these hypothetical gross investments returns can
be achieved for any one year or sustained over any period of time.
The death benefit, account value and cash surrender value for a policy would be
different from those shown if the actual gross annual rates of return averaged
0.00%, 12.00% and 6.00% over a period of years but varied above or below that
average during the period. They would also be different if premiums were paid in
a different frequency than shown.
- --------------------------------------------------------------------------------
Corporate Benefits 61
<PAGE>
ADDITIONAL INFORMATION
DIRECTORS AND OFFICERS
Set forth below is information regarding the directors and principal officers of
Security Life of Denver Insurance Company. Security Life's address, and the
business address of each person named, except as noted with one or two asterisks
(*/**), is Security Life Center, 1290 Broadway, Denver, Colorado 80203-5699. The
business address of each person denoted with one asterisk (*) is ING North
America Insurance Corporation, 5780 Powers Ferry Road, Atlanta, Georgia
30327-4390. The business address of each person denoted with two asterisks (**)
is Security Life of Denver Insurance Company, 9140 Arrowpoint Blvd., Suite 400,
Charlotte, North Carolina 28273.
Name and Principal
Business and Address Position and Offices with Security Life of Denver
- -------------------- -------------------------------------------------
Stephen M. Christopher Chairman, President and Chief Executive Officer
Thomas F. Conroy Director, President, ING Reinsurance International
Michael W. Cunningham* Director, Executive Vice President
Mark A. Tullis* Director
P. Randall Lowery* Director
Jess A. Skriletz Chief Executive Officer and General Manager, ING
Reinsurance and ING Institutional Markets
Gregory G. McGreevey President, ING Institutional Markets
Jerome J. Cwiok* Executive Vice President and Chief Operating Officer
James L. Livingston, Jr. Executive Vice President and Chief Actuary
Jeffrey R. Messner Executive Vice President and Chief Marketing Officer
John R. Barmeyer* Senior Vice President, Chief Legal Officer
Wayne D. Bidelman Senior Vice President, CCRC
Eugene L. Copeland Senior Vice President and General Counsel, ING
Reinsurance
Arnold A. Dicke Senior Vice President, Chief Actuary, ING Reinsurance
Charles LeDoyen** Senior Vice President, Structured Settlements
Terry L. Morrison Senior Vice President, New Business Operations
Jeffery W. Seel* Senior Vice President, Chief Investment Officer
Mark A. Smith Senior Vice President, Insurance Services
- --------------------------------------------------------------------------------
Corporate Benefits 62
<PAGE>
Name and Principal
Business and Address Position and Offices with Security Life of Denver
- -------------------- -------------------------------------------------
Lawrence D. Taylor Senior Vice President, Product Management
William D. Tyler* Senior Vice President, Chief Information Officer
Gary W. Waggoner Vice President, General Counsel and Corporate
Secretary
- --------------------------------------------------------------------------------
Corporate Benefits 63
<PAGE>
REGULATION
We are regulated and supervised by the Division of Insurance of the Department
of Regulatory Agencies of the State of Colorado which periodically examines our
financial condition and operations. In addition, we are subject to the insurance
laws and regulations in every jurisdiction in which we do business. As a result,
the provisions of this policy may vary somewhat from jurisdiction to
jurisdiction.
We are required to submit annual statements, including financial statements, of
our operations and finances to the insurance departments of the various
jurisdictions in which we do business to determine solvency and compliance with
state insurance laws and regulations.
We are also subject to various federal securities laws and regulations.
LEGAL MATTERS
The legal matters in connection with the policy described in this prospectus
have been passed on by the General Counsel of Security Life. Sutherland Asbill &
Brennan LLP has provided advice on certain matters relating to the federal
securities laws.
LEGAL PROCEEDINGS
Security Life, as an insurance company, is ordinarily involved in litigation. We
do not believe that any current litigation is material to Security Life's
ability to meet its obligations under the policy or to the separate account, and
we do not expect to incur significant losses from such actions. ING America
Equities, Inc., the principal underwriter and distributor of the policy, is not
engaged in any litigation of any material nature.
EXPERTS
The consolidated financial statements of Security Life of Denver Insurance
Company and Subsidiaries at December 31, 1998 and 1997, and for each of the
three years in the period ended December 31, 1998, and the financial statements
of the Security Life Separate Account L1 at December 31, 1998, and for each of
the three years in the period ended December 31, 1998, appearing in this
prospectus and registration statement have been audited by Ernst & Young LLP,
independent auditors, as set forth in their reports thereon appearing elsewhere
herein, and are included in reliance upon such reports given on the authority of
such firm as experts in accounting and auditing. Other financial statements
included in the prospectus are unaudited.
Actuarial matters in this prospectus have been examined by James L. Livingston,
Jr., F.S.A., M.A.A.A., who is Executive Vice President and Chief Actuary of
Security Life. His opinion on actuarial matters is filed as an exhibit to the
Registration Statement we filed with the SEC.
REGISTRATION STATEMENT
We have filed a Registration Statement relating to the separate account and the
variable life insurance policy described in this prospectus with the SEC. The
Registration Statement, which is required by the Securities Act of 1933,
includes additional information that is not required in this prospectus under
the rules and regulations of the SEC. The additional information may be obtained
from the SEC's principal office in Washington, DC. There is a charge for this
material.
- --------------------------------------------------------------------------------
Corporate Benefits 64
<PAGE>
INDEX OF SPECIAL TERMS
The following special terms are used in this prospectus. We explain each term on
the page(s) listed in the body of this prospectus and in the summary, if
applicable:
Account value..................................................................8
Accumulation unit.............................................................27
Accumulation unit value.......................................................27
Adjustable term insurance rider...............................................20
Age...........................................................................34
Base death benefit............................................................21
Beneficiary(ies)..............................................................10
Customer service center........................................................2
Death proceeds................................................................22
Free look period..............................................................33
General account...............................................................11
Guaranteed interest division..................................................16
Initial premium...............................................................18
Insured person................................................................17
Investment date...............................................................17
Investment options............................................................12
Loan division..................................................................9
Monthly processing date.......................................................23
Net account value..............................................................9
Net amount at risk.............................................................9
Net premium...................................................................19
Owner.........................................................................34
Partial withdrawal............................................................31
Policy........................................................................17
Policy date...................................................................18
Policy loan...................................................................30
Portfolios....................................................................12
Rider.........................................................................24
Scheduled premium.............................................................18
Segment.......................................................................24
Separate account..............................................................11
Smoker........................................................................48
Stated death benefit..........................................................17
Target death benefit..........................................................24
Target premium................................................................19
Total death benefit...........................................................24
Transaction date..............................................................27
Valuation date.................................................................9
Valuation period..............................................................27
Variable division.............................................................12
- --------------------------------------------------------------------------------
Corporate Benefits 65
<PAGE>
FINANCIAL STATEMENTS
The consolidated financial statements of Security Life of Denver Insurance
Company and Subsidiaries ("Security Life and Subsidiaries") at December 31, 1998
and 1997, and for each of the three years in the period ended December 31, 1998,
are prepared in accordance with generally accepted accounting principles and
start on page 67.
The financial statements included for the Security Life Separate Account L1 at
December 31, 1998 and for each of the three years in the period ended December
31, 1998, are prepared in accordance with generally accepted accounting
principles and represent those divisions that had commenced operations by that
date.
The consolidated financial statements of Security Life and Subsidiaries, as well
as the financial statements included for the Security Life Separate Account L1
referred to above have been audited by Ernst & Young LLP. The consolidated
financial statements of Security Life and Subsidiaries should be distinguished
from the financial statements of the Security Life Separate Account L1 and
should be considered only as bearing upon the ability of Security Life and
Subsidiaries to meet its obligations under the policies. They should not be
considered as bearing upon the investment experience of the divisions of
Security Life Separate Account L1.
- --------------------------------------------------------------------------------
Corporate Benefits 66
<PAGE>
Consolidated Financial Statements
Security Life of Denver
Insurance Company
and Subsidiaries
Years ended December 31, 1998, 1997 and 1996
with Report of Independent Auditors
- --------------------------------------------------------------------------------
Corporate Benefits 67
Consolidated Financial Statements
Security Life of Denver
Insurance Company
and Subsidiaries
Years ended December 31, 1998, 1997 and 1996
with Report of Independent Auditors
- --------------------------------------------------------------------------------
Corporate Benefits 67
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Consolidated Financial Statements
Years ended December 31, 1998, 1997 and 1996
CONTENTS
Report of Independent Auditors ..............................................69
Audited Consolidated Financial Statements
Consolidated Balance Sheets .................................................70
Consolidated Statements of Income ...........................................72
Consolidated Statements of Comprehensive Income..............................73
Consolidated Statements of Stockholder's Equity .............................74
Consolidated Statements of Cash Flows .......................................75
Notes to Consolidated Financial Statements ..................................77
- --------------------------------------------------------------------------------
Corporate Benefits 68
<PAGE>
Report of Independent Auditors
Board of Directors and Stockholder
Security Life of Denver Insurance Company
We have audited the accompanying consolidated balance sheets of Security Life of
Denver Insurance Company (a wholly-owned subsidiary of ING America Insurance
Holdings, Inc.) and subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of income, comprehensive income, stockholder's
equity, and cash flows for each of the three years in the period ended December
31, 1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Security Life of
Denver Insurance Company and subsidiaries at December 31, 1998 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
Denver, Colorado
April 5, 1999
- --------------------------------------------------------------------------------
Corporate Benefits 69
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Consolidated Balance Sheets
(Dollars in Thousands)
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
1999 1998 1997
-----------------------------------------------------------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Investments (Notes 2 and 3):
Fixed maturities, at fair value (amortized cost of
$3,615,488, $3,383,582 and $3,007,012
respectively) $3,515,341 $ 3,503,530 $3,152,355
Equity securities, at fair value (cost of $5,074,
$6,761 and $6,754, respectively) 5,915 8,400 8,019
Mortgage loans on real estate 917,129 784,108 576,620
Investment real estate, at cost, less accumulated
depreciation of $556,$706 and $667,
respectively 1,033 1,740 1,767
Policy loans 925,721 925,623 875,405
Other long-term investments 18,201 17,671 14,307
Short-term investments 27,958 747 55,466
-----------------------------------------------------------
Total investments 5,411,298 5,241,819 4,683,939
Cash 40,719 31,644 22,299
Accrued investment income 77,687 52,440 49,726
Reinsurance recoverable:
Paid benefits 22,925 11,364 11,170
Unpaid benefits 32,897 24,312 14,988
Prepaid reinsurance premiums (Note 8) 3,571,315 3,329,901 2,744,863
Deferred policy acquisition costs (DPAC) 826,369 778,126 682,905
Property and equipment, at cost, less accumulated
depreciation of $26,147, $25,981 and $22,925,
respectively 34,508 36,141 37,943
Federal income tax recoverable (Note 9) 32,060 - 5,722
Deferred tax assets 6,860 - -
Indebtedness from related parties 5,113 4,339 2,443
Other assets 189,015 113,019 87,298
Separate account assets (Note 6) 512,189 423,474 263,035
-----------------------------------------------------------
Total assets $10,762,955 $10,046,579 $8,606,331
===========================================================
</TABLE>
- --------------------------------------------------------------------------------
Corporate Benefits 70
<PAGE>
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
1999 1998 1997
-----------------------------------------------------------
(Unaudited)
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Future policy benefits:
Life and annuity reserves $ 5,097,013 $ 4,857,141 $4,328,577
Guaranteed investment contracts 3,613,312 3,210,012 2,634,654
Policyholders' funds 90,025 81,064 82,291
Advance premiums 196 272 365
Accrued dividends and dividends on deposit 27,280 21,268 21,129
Policy and contract claims 147,686 130,100 103,525
-----------------------------------------------------------
Total future policy benefits 8,975,512 8,299,857 7,170,541
Accounts payable and accrued expenses 107,276 108,165 99,335
Indebtedness to related parties 21,344 13,755 7,704
Long-term debt to related parties (Note 10) 100,000 100,000 75,000
Accrued interest on long-term debt to related
parties (Note 10) 9,653 5,387 5,128
Other liabilities 213,521 109,593 61,424
Federal income taxes payable (Note 9) - 106 -
Deferred federal income taxes (Note 9) - 60,062 53,829
Separate account liabilities (Note 6) 512,189 423,474 263,035
-----------------------------------------------------------
Total liabilities 9,939,495 9,120,399 7,735,996
Commitments and contingencies
(Notes 8 and 13)
Stockholder's equity (Note 11):
Common stock, $20,000 par value:
Authorized - 149 shares
Issued and outstanding - 144 shares 2,880 2,880 2,880
Additional paid-in capital 315,722 315,722 315,722
Retained earnings 597,385 563,553 500,795
Accumulated other comprehensive income (92,527) 44,025 50,938
-----------------------------------------------------------
Total stockholder's equity 823,460 926,180 870,335
-----------------------------------------------------------
Total liabilities and stockholder's equity $10,762,955 $10,046,579 $8,606,331
===========================================================
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Corporate Benefits 71
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Consolidated Statements of Income
(Dollars in Thousands)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30 YEAR ENDED DECEMBER 31
1999 1998 1997 1996
------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C>
Revenues:
Traditional life insurance premiums $ 79,526 $ 120,675 $ 122,429 $118,200
Universal life and investment product charges 186,444 229,226 217,108 202,081
Reinsurance premiums assumed 389,463 431,267 446,434 339,335
------------------------------------------------------------------
655,433 781,168 785,971 659,616
Reinsurance premiums ceded (113,971) (143,211) (124,815) (117,880)
------------------------------------------------------------------
541,462 637,957 661,156 541,736
Net investment income 296,973 361,996 340,898 312,121
Net realized gains (losses) on investments (26,374) 10,818 28,645 4,770
Other revenues 2,640 11,771 6,743 526
------------------------------------------------------------------
814,701 1,022,542 1,037,442 859,153
Benefits and expenses:
Benefits:
Traditional life insurance:
Death benefits 244,240 239,921 299,305 235,828
Other benefits 83,932 77,209 79,849 71,939
Universal life and investment contracts:
Interest credited to account balances 193,542 236,136 217,614 186,908
Death benefits incurred in excess of account
balances 80,398 63,103 73,260 54,004
Increase in future policy benefits 53,654 102,875 72,685 121,946
Reinsurance recoveries (106,888) (84,506) (98,376) (80,276)
Product conversions 2,247 10,578 7,014 16,379
------------------------------------------------------------------
551,125 645,316 651,351 606,728
Expenses:
Commissions 60,213 49,569 46,516 25,846
Insurance operating expenses 63,672 125,194 89,075 69,580
Amortization of deferred policy acquisition costs 87,349 105,639 116,495 94,685
------------------------------------------------------------------
762,359 925,718 903,437 796,839
------------------------------------------------------------------
Income before federal income taxes 52,342 96,824 134,005 62,314
Federal income taxes (Note 9) 18,510 34,066 47,019 21,876
------------------------------------------------------------------
Net income $ 33,832 $ 62,758 $ 86,986 $ 40,438
==================================================================
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Corporate Benefits 72
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Consolidated Statements of Comprehensive Income
(Dollars in Thousands)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30 YEAR ENDED DECEMBER 31
1999 1998 1997 1996
------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C>
Net income $ 33,832 $62,758 $86,986 $40,438
-----------------------------------------------------------------
Other comprehensive income (loss):
Unrealized gains (losses) on securities:
Net change in unrealized holding gains (losses),
net of tax (151,530) (11,251) 28,367 (25,294)
Reclassification adjustment for realized gains
included in net income, net of tax 7,216 (5,010) (4,601) (2,422)
Effect on DPAC of unrealized gains and
losses on fixed maturities, net of tax 8,133 7,236 (37,522) 13,461
Reclassification effect on DPAC of realized
gains and losses included in net income, net
of tax (371) 3,075 5,976 -
Net change in pension liability, net of tax - (963) - -
-----------------------------------------------------------------
Total other comprehensive income (loss) (136,552) (6,913) (7,780) (14,255)
-----------------------------------------------------------------
Comprehensive income (loss) $(102,720) $55,845 $79,206 $26,183
=================================================================
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Corporate Benefits 73
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Consolidated Statements of Stockholder's Equity
(Dollars in Thousands)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30 YEAR ENDED DECEMBER 31
1999 1998 1997 1996
------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C>
Common stock:
Balance at beginning and end of period $ 2,880 $ 2,880 $ 2,880 $ 2,880
=================================================================
Additional paid-in capital:
Balance at beginning of period $315,722 $315,722 $302,722 $297,422
Capital contributions - - 13,000 5,300
-----------------------------------------------------------------
Balance at end of period $315,722 $315,722 $315,722 $302,722
=================================================================
Accumulated other comprehensive income (loss):
Net unrealized gains (losses) on investments:
Balance at beginning of period $ 44,988 $ 50,938 $ 58,718 $ 72,973
Unrealized gains (losses) on securities:
Change in unrealized gains (losses),
net of tax (144,314) (16,261) 23,766 (27,716)
Effect on DPAC of unrealized gains and
losses on fixed maturities, net of tax 7,762 10,311 (31,546) 13,461
-----------------------------------------------------------------
Balance at end of period (91,564) 44,988 50,938 58,718
Accumulated net pension liability:
Balance at beginning of period (963) - - -
Net change in pension liability, net of tax - (963) - -
-----------------------------------------------------------------
Balance at end of period (963) (963) - -
-----------------------------------------------------------------
Total accumulated other comprehensive income
(loss) $(92,527) $ 44,025 $ 50,938 $ 58,718
=================================================================
Retained earnings:
Balance at beginning of period $563,553 $500,795 $413,809 $373,371
Net income 33,832 62,758 86,986 40,438
-----------------------------------------------------------------
Balance at end of period $597,385 $563,553 $500,795 $413,809
=================================================================
Total stockholder's equity $823,460 $926,180 $870,335 $778,129
=================================================================
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Corporate Benefits 74
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Consolidated Statements of Cash Flows
(Dollars in Thousands)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30 YEAR ENDED DECEMBER 31
1999 1998 1997 1996
------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 33,832 $ 62,758 $ 86,986 $ 40,438
Adjustments to reconcile net income to net cash
provided by operating activities:
Increase in future policy benefits 556,093 874,765 995,632 585,581
Net decrease (increase) in federal income taxes (98,982) 12,061 (12,317) 78,668
Increase (decrease) in accounts payable and
accrued expenses 89,983 55,361 21,033 (1,361)
Increase in accrued interest on long-term debt 4,266 259 1,428 3,676
Increase in accrued investment income (25,247) (2,714) (4,300) (7,294)
(Increase) decrease in reinsurance recoverable (20,146) (9,518) 3,733 (5,214)
Increase in prepaid reinsurance premiums (241,414) (585,038) (793,851) (336,053)
Net realized investment losses (gains) 26,513 (10,818) (28,645) (4,770)
Depreciation and amortization expense 1,713 3,174 3,630 3,857
Policy acquisition costs deferred (124,167) (184,993) (174,374) (152,299)
Amortization of deferred policy acquisition
costs 87,349 105,639 116,495 94,685
Increase in accrual for postretirement benefits (506) 675 557 484
Other, net 17,372 (7,053) 43,538 (15,539)
-----------------------------------------------------------------
Net cash provided by operating activities 310,653 314,558 259,545 284,859
INVESTING ACTIVITIES
Securities available-for-sale:
Sales:
Fixed maturities 2,005,376 5,015,989 2,279,598 334,482
Equity securities 1,747 2,251 648 4,198
Maturities--fixed maturities 154,269 274,463 410,632 727,937
Purchases:
Fixed maturities (2,428,189) (5,670,994) (2,919,145) (1,522,369)
Equity securities - (2,089) (2,561) (428)
Sale, maturity or repayment of investments:
Mortgage loans on real estate 29,618 51,235 38,756 18,102
Investment real estate 1,109 - - 1,354
Other long-term investments 4,312 10,678 2,002 -
</TABLE>
- --------------------------------------------------------------------------------
Corporate Benefits 75
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Consolidated Statements of Cash Flows (continued)
(Dollars in Thousands)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30 YEAR ENDED DECEMBER 31
1999 1998 1997 1996
------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C>
INVESTING ACTIVITIES (CONTINUED)
Purchase or issuance of investments:
Mortgage loans on real estate $ (163,968) $ (259,945) $ (163,528) $ (186,228)
Investment real estate (1) (13) (35) -
Policy loans, net (98) (50,218) (80,094) (41,071)
Other long-term investments (4,855) (14,042) (5,248) 809
Short-term investments, net (27,215) 55,115 (48,447) 3,942
Additions to property and equipment (59) (1,418) (2,687) (4,482)
Disposals of property and equipment - 68 145 2,389
-----------------------------------------------------------------
Net cash used by investing activities (427,954) (588,920) (489,964) (661,365)
FINANCING ACTIVITIES
Increase in indebtedness to related parties 6,814 29,156 5,217 42,206
Cash contributions from parent - - 13,000 5,300
Receipts from interest sensitive products
credited to policyholder account balances 317,897 505,728 555,223 434,726
Return of policyholder account balances on
interest sensitive policies (198,335) (251,177) (334,543) (123,949)
-----------------------------------------------------------------
Net cash provided by financing activities 126,376 283,707 238,897 358,283
-----------------------------------------------------------------
Net increase (decrease) in cash 9,075 9,345 8,478 (18,223)
Cash at beginning of period 31,644 22,299 13,821 32,044
-----------------------------------------------------------------
Cash at end of period $ 40,719 $ 31,644 $ 22,299 $ 13,821
=================================================================
</TABLE>
See accompanying notes.
- ------------------------------------------------------------------------------
Corporate Benefits 76
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
(Information subsequent to December 31, 1998 is unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts and
operations, after intercompany eliminations, of Security Life of Denver
Insurance Company (Security Life) and its wholly-owned subsidiaries: Midwestern
United Life Insurance Company (Midwestern United); First ING Life Insurance
Company of New York (First ING); First Secured Mortgage Deposit Corporation; and
ING America Equities, Inc.
NATURE OF OPERATIONS
Security Life of Denver Insurance Company and its subsidiaries (the Company) is
a wholly-owned subsidiary of ING America Insurance Holdings, Inc. (ING America).
The Company focuses on two markets, the advanced market and reinsurance to other
insurers. The life insurance products offered for the advanced market include
wealth transfer and estate planning, executive benefits, charitable giving and
corporate owned life insurance. These products include traditional life,
interest sensitive life, universal life and variable life. Operations are
conducted almost entirely on the general agency basis and the Company is
presently licensed in all states (approved for reinsurance only in New York),
the District of Columbia and the Virgin Islands. In the reinsurance market, the
Company offers financial security to clients through a mix of total risk
management and traditional life insurance services.
The significant accounting policies followed by the Company that materially
affect the financial statements are summarized below:
BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles (GAAP) which, as to the
insurance companies included in the consolidation, differ from statutory
accounting practices prescribed or permitted by state insurance regulatory
authorities.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
- ------------------------------------------------------------------------------
Corporate Benefits 77
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ACCOUNTING CHANGES
During June 1996, the Financial Accounting Standards Board (FASB) issued
Statement No. 125, Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities. This Statement was effective for transfers
and servicing of financial assets and extinguishments of liabilities occurring
after December 31, 1996. Also in 1996, the FASB issued Statement No. 127, which
delayed certain provisions of FAS 125 dealing with transactions such as
securities lending, repurchase and dollar repurchase agreements until 1998. The
portion of FAS 125 that became effective in 1997 requires the entity to
recognize financial and servicing assets it controls and the liabilities it has
incurred and to derecognize financial assets when control has been surrendered
in accordance with the criteria provided in the Statement. The application of
the new rules did not have a material impact on the financial statements of the
Company.
Effective January 1, 1996, the Company adopted FASB Statement No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of, which requires impairment losses to be recorded on long-lived
assets used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less than
the assets' carrying amount. Statement 121 also addresses the valuation for
long-lived assets that are identified for disposal. Adoption of this standard
resulted in an insignificant impact to net income and stockholder's equity.
During 1998, the Company adopted FASB Statement No. 132, Employers' Disclosures
about Pensions and Other Postretirement Benefits, which standardizes the
disclosure requirements for pension and other postretirement benefits. This
Statement is effective for years beginning after December 15, 1997, with the
restatement of disclosures for prior periods provided for comparative purposes,
unless prior period information is not readily available.
During 1998, the Company adopted FASB Statement No. 130, Reporting Comprehensive
Income, which requires an entity to divide comprehensive income into net income
and other comprehensive income in the period recognized. This Statement is
effective for fiscal years beginning after December 15, 1997, with the
restatement of prior period disclosures for comparative purposes. As a result of
implementing this Statement, the Company has classified items of other
comprehensive income by their nature in the statements of comprehensive income
and the accumulated balance of other comprehensive income in the equity section
of the balance sheet. This Statement affects the presentation of the financial
statements, with no effect on the valuation of total stockholder's equity.
- ------------------------------------------------------------------------------
Corporate Benefits 78
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PENDING ACCOUNTING STANDARDS
During 1998, the FASB issued Statement No. 133, Accounting for Derivative
Financial Instruments and Hedging Activities, which establishes a new model for
accounting and reporting for derivatives and hedging activities. Statement 133
requires all derivatives to be recognized on the balance sheet and measured at
fair value. Based on the type of hedging relationship (fair value, cash flow, or
foreign currency), Statement 133 requires the recognition of offsetting changes
in value or cash flows of both the derivative and the hedged item in earnings in
the same period. Changes in the fair value of derivatives that are not
designated as hedges or that do not meet the hedge accounting criteria in
Statement 133 are included in earnings in the period of change. In June 1999,
the FASB issued Statement No. 137, Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133,
which delayed the effective date of Statement 133 until June 15, 2000. Upon the
initial application of Statement 133 all derivatives are required to be
recognized in the balance sheet as either assets or liabilities and measured at
fair value. The Company plans to adopt this Statement during 2000, and the
effect of implementation on the Company's financial statements has not yet been
determined.
INVESTMENTS
Investments are presented on the following bases:
The carrying value of fixed maturities depends on the classification of the
security: securities held-to-maturity, securities available-for-sale, and
trading securities. Management determines the appropriate classification of
debt securities at the time of purchase and reevaluates such designation as
of each balance sheet date.
The Company does not hold any securities classified as held-to-maturity or
trading securities.
Debt securities and marketable equity securities are classified as
available-for-sale. Available-for-sale securities are stated at fair value,
with the unrealized gains and losses, and deferred policy acquisition cost
adjustments, reported net of tax as a component of other comprehensive
income in stockholder's equity.
- ------------------------------------------------------------------------------
Corporate Benefits 79
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The amortized cost of debt securities classified as held-to-maturity or
available-for-sale is adjusted for amortization of premiums and accretion
of discounts to maturity, or in the case of mortgage-backed securities,
over the estimated life of the security. Such amortization is included in
interest income from investments. Interest and dividends are included in
net investment income as earned.
Mortgage loans are carried at the unpaid balances less an allowance for
credit losses. Investment real estate is carried at cost, less accumulated
depreciation. Policy loans are carried at unpaid balances.
Derivatives are accounted for on the same basis as the asset hedged.
Realized gains and losses, and declines in value judged to be
other-than-temporary are included in net realized gains on investments. The
cost of securities sold is based on the specific identification method.
RECOGNITION OF PREMIUM REVENUES
Premiums for traditional life insurance products, which include those products
with fixed and guaranteed premiums and benefits and consist principally of whole
life insurance policies, are recognized as revenue when due. Revenues for
universal life insurance policies and for investment products consist of policy
charges for the cost of insurance, policy administration charges, and surrender
charges assessed against policyholder account balances during the year.
DEFERRED POLICY ACQUISITION COSTS
Commissions, reinsurance allowances, and other costs of acquiring traditional
life insurance, including reinsurance assumed, universal life insurance
(including interest sensitive products) and investment products that vary with
and are primarily related to the production of new and renewal business, have
been deferred. Traditional life insurance acquisition costs are being amortized
using assumptions consistent with those used in computing policy benefit
reserves. The period of amortization is normally over the premium-paying period.
In the case of policies with no first year premium, the period of amortization
includes the first year, in addition to the premium-paying period. For universal
life insurance and investment products, acquisition costs are being amortized
generally in proportion to the present value (using the assumed crediting rate)
of expected
- ------------------------------------------------------------------------------
Corporate Benefits 80
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
gross margins from surrender charges, investments, mortality, and expenses. This
amortization is adjusted retrospectively when estimates of current or future
gross margins to be realized from a group of products are revised.
Deferred policy acquisition costs are adjusted to reflect changes that would
have been necessary if unrealized investment gains and losses related to
available-for-sale securities had been realized. The Company has reflected those
adjustments in the asset balance with the offset as a direct adjustment to
accumulated other comprehensive income in stockholder's equity.
FUTURE POLICY BENEFITS
Benefit reserves for traditional life insurance products (other than reinsurance
assumed) are computed using a net level premium method including assumptions as
to investment yields, mortality, withdrawals and other assumptions based on
Company and industry experience. These assumptions include provisions for
adverse deviation and are modified as necessary to reflect anticipated trends.
Reserve interest assumptions are those deemed appropriate at the time of policy
issue, and range from 3% to 7.5%. Policy benefit claims are charged to expense
in the year that the claims are incurred.
Benefit reserves for reinsurance assumed are computed using pricing assumptions
with provisions for adverse deviation. Benefits for level-term reinsurance
assumed are computed to recognize profits in proportion with revenue. Benefit
reserves for all other reinsurance assumed are computed to recognize profits in
proportion to the coverage provided.
Benefit reserves for universal life-type policies (including fixed premium
interest sensitive products) and investment products are computed under a
retrospective deposit method and represent policy account balances before
applicable surrender charges. Policy benefits and claims that are charged to
expense include benefit claims incurred during the year in excess of related
policy account balances. Interest crediting rates for universal life and
investment products range from 3.80% to 7.81% during 1998, 4.60% to 7.81% during
1997, and 4.60% to 7.45% during 1996.
Included in life and annuity reserves is an unearned revenue reserve that
reflects the unamortized balance of excess heaped expense loads over ultimate
renewal expense loads on universal life and investment products. These excess
fees have been deferred and are being recognized in income over the periods
benefited, using the same assumptions and factors used to amortize deferred
policy acquisition costs.
- ------------------------------------------------------------------------------
Corporate Benefits 81
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
POLICY AND CONTRACT CLAIMS
The liabilities for unpaid claims include estimates of amounts due on reported
claims and claims that have been incurred but were not reported as of December
31. Such estimates are based on actuarial projections applied to historical
claim payment data and are considered reasonable and adequate to discharge the
Company's obligations for claims incurred but unpaid as of December 31.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost less accumulated depreciation.
Impairment losses are recorded when indicators of impairment are present and the
estimated undiscounted cash flows are less than the assets' carrying value.
Depreciation for major classes of assets is calculated on a straight-line basis.
PARTICIPATING INSURANCE
The Company accrues a liability for earnings on participating policies that
cannot inure to the benefit of the Company's stockholder. The liability is
determined based on earnings on participating policies in excess of 10% of
profits on participating business before payment of policyholder dividends. The
liability for these undistributed earnings was $5,816,000 and $6,074,000 at
December 31, 1998 and 1997, respectively. Participating business approximates
.2% of the Company's ordinary life insurance in force and 1.4% of premium
income. Earnings for participating insurance are based on the actual earnings of
the participation block of policies. Expenses and taxes are allocated based on
the amount of participating insurance in force. Investment income is allocated
based on the yield of the participating investment portfolio. The amount of
dividends to be paid is determined annually by the Board of Directors. Amounts
allocable to participating policyholders are based on published dividend
projections or expected dividend scales. Dividends of $3,233,000, $3,377,000,
and $3,307,000 were incurred in 1998, 1997, and 1996, respectively.
FEDERAL INCOME TAXES
Deferred federal income taxes have been provided or credited to reflect
significant temporary differences between income reported for tax and financial
reporting purposes using reasonable assumptions.
- ------------------------------------------------------------------------------
Corporate Benefits 82
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH FLOW INFORMATION
Cash includes cash on hand and demand deposits. Included as a component of
operating activities is interest paid of $10,121,000, $10,110,000, and
$1,016,000 for 1998, 1997, and 1996, respectively.
GUARANTY FUND ASSESSMENTS
Insurance companies are assessed the costs of funding the insolvencies of other
insurance companies by the various state guaranty associations, generally based
on the amount of premium companies collect in that state. The Company accrues
the cost of future guaranty fund assessments based on estimates of insurance
company insolvencies provided by the National Organization of Life and Health
Insurance Guaranty Associations (NOLHGA) and the amount of premiums written in
each state. The Company reduces the accrual by credits allowed in some states to
reduce future premium taxes by a portion of assessments in that state.
RECLASSIFICATIONS
Certain amounts in the 1997 and 1996 financial statements have been reclassified
to conform to the 1998 presentation.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The accompanying consolidated balance sheet at September 30, 1999 and the
consolidated statements of income, stockholder's equity, comprehensive income,
and cash flows for the nine-month period ended September 30, 1999 are unaudited
and have been prepared on the same basis as the audited financial statements
included herein. In the opinion of management, such unaudited financial
statements include all adjustments necessary to present fairly the information
set forth therein, which consists solely of normal recurring adjustments. The
results of operations for such interim periods are not necessarily indicative of
results for the full respective year.
- ------------------------------------------------------------------------------
Corporate Benefits 83
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. INVESTMENTS
The amortized cost and fair value of investments in fixed maturities and equity
securities are as follows at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------------------------------------------------------------
COST OR GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-----------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Available-for-sale:
U.S. Treasury securities and obligations
of U.S. government corporations and
agencies $ 166,611 $ 3,829 $ 589 $ 169,851
States, municipalities and political
subdivisions 23,368 959 1,803 22,524
Public utilities securities 172,968 4,885 904 176,949
Debt securities issued by foreign
governments 952 - - 952
Corporate securities 1,251,462 46,292 23,512 1,274,242
Mortgage-backed securities 1,132,058 75,159 6,922 1,200,295
Other asset-backed securities 635,539 19,968 3,578 651,929
Redeemable preferred stocks 312 42 - 354
Derivatives hedging fixed maturities
(Note 3) 312 6,434 312 6,434
-----------------------------------------------------------------------
Total fixed maturities 3,383,582 157,568 37,620 3,503,530
Preferred stocks (nonredeemable) 4,251 6 52 4,205
Common stocks 2,510 1,780 95 4,195
-----------------------------------------------------------------------
Total equity securities 6,761 1,786 147 8,400
-----------------------------------------------------------------------
Total $3,390,343 $159,354 $37,767 $3,511,930
=======================================================================
</TABLE>
- ------------------------------------------------------------------------------
Corporate Benefits 84
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------------------------------------------------------------
COST OR GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-----------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Available-for-sale:
U.S. Treasury securities and obligations
of U.S. government corporations and
agencies $ 51,387 $ 1,629 $ 39 $ 52,977
States, municipalities and political
subdivisions 43,185 1,023 128 44,080
Public utilities securities 151,642 5,030 1,216 155,456
Debt securities issued by foreign
governments 3,272 - - 3,272
Corporate securities 1,147,380 48,001 6,539 1,188,842
Mortgage-backed securities 1,165,376 89,539 6,661 1,248,254
Other asset-backed securities 443,473 13,285 584 456,174
Redeemable preferred stocks - - - -
Derivatives hedging fixed maturities
(Note 3) 1,297 3,118 1,115 3,300
-----------------------------------------------------------------------
Total fixed maturities 3,007,012 161,625 16,282 3,152,355
Preferred stocks (nonredeemable) 3,368 67 122 3,313
Common stocks 3,386 1,446 126 4,706
-----------------------------------------------------------------------
Total equity securities 6,754 1,513 248 8,019
-----------------------------------------------------------------------
Total $3,013,766 $163,138 $16,530 $3,160,374
=======================================================================
</TABLE>
- --------------------------------------------------------------------------------
Corporate Benefits 85
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. INVESTMENTS (CONTINUED)
The amortized cost and fair value of investments in fixed maturities at December
31, 1998, by contractual maturity, are shown in the following table (in
thousands). Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties.
AMORTIZED
COST FAIR VALUE
----------------- ------------------
Available for sale:
Due in one year or less $ 18,024 $ 18,156
Due after one year through five years 187,198 183,735
Due after five years through ten years 695,842 702,563
Due after ten years 714,609 740,418
----------------- ------------------
1,615,673 1,644,872
Mortgage-backed securities 1,132,058 1,200,295
Other asset-backed securities 635,539 651,929
Derivatives 312 6,434
----------------- ------------------
Total available-for-sale $3,383,582 $3,503,530
================= ==================
Changes in unrealized gains (losses) on investments in available-for-sale
securities for the years ended December 31, 1998, 1997 and 1996 are summarized
as follows (in thousands):
DECEMBER 31, 1998
-------------------------------------------
FIXED EQUITY TOTAL
-------------- -------------- -------------
Gross unrealized gains $157,568 $1,786 $159,354
Gross unrealized (losses) (37,620) (147) (37,767)
-------------- -------------- -------------
Net unrealized gains 119,948 1,639 121,587
Deferred income tax (41,982) (574) (42,556)
-------------- -------------- -------------
Net unrealized gains after taxes 77,966 1,065 79,031
Less:
Balance at beginning of year 94,470 822 95,292
-------------- -------------- -------------
Change in net unrealized gains
(losses) $ (16,504) $ 243 $ (16,261)
============== ============== =============
- --------------------------------------------------------------------------------
Corporate Benefits 86
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
--------------------------------------------
FIXED EQUITY TOTAL
-------------- -------------- --------------
Gross unrealized gains $161,625 $1,513 $163,138
Gross unrealized (losses) (16,282) (248) (16,530)
-------------- -------------- --------------
Net unrealized gains 145,343 1,265 146,608
Deferred income tax (50,873) (443) (51,316)
-------------- -------------- --------------
Net unrealized gains after taxes 94,470 822 95,292
Less:
Balance at beginning of year 71,237 289 71,526
-------------- -------------- --------------
Change in net unrealized gains
(losses) $ 23,233 $ 533 $ 23,766
============== ============== ==============
DECEMBER 31, 1996
--------------------------------------------
FIXED EQUITY TOTAL
-------------- -------------- --------------
Gross unrealized gains $140,089 $822 $140,911
Gross unrealized (losses) (30,493) (376) (30,869)
-------------- -------------- --------------
Net unrealized gains 109,596 446 110,042
Deferred income tax (38,359) (157) (38,516)
-------------- -------------- --------------
Net unrealized gains after taxes 71,237 289 71,526
Less:
Balance at beginning of year 99,389 (147) 99,242
-------------- -------------- --------------
Change in net unrealized gains
(losses) $ (28,152) $436 $ (27,716)
============== ============== ==============
As part of its overall investment management strategy, the Company has entered
into agreements to purchase $79,175,000 in mortgage loans as of December 31,
1998. These agreements were settled during 1999. The Company had no agreements
to sell securities at December 31, 1998.
- --------------------------------------------------------------------------------
Corporate Benefits 87
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. INVESTMENTS (CONTINUED)
Major categories of investment income for the years ended December 31 are
summarized as follows (in thousands):
1998 1997 1996
-------------- --------------- ---------------
Fixed maturities $278,227 $259,936 $240,931
Mortgage loans on real estate 47,567 40,908 29,143
Policy loans 58,016 56,087 52,205
Other investments 2,911 3,159 2,197
-------------- --------------- ---------------
386,721 360,090 324,476
Investment expenses (24,725) (19,192) (12,355)
============== =============== ===============
Net investment income $361,996 $340,898 $312,121
============== =============== ===============
Net realized gains (losses) on investments for the years ended December 31 are
summarized as follows (in thousands):
1998 1997 1996
---------------- ---------------- ----------------
Fixed maturities $ 9,691 $27,717 $4,540
Equity securities 168 (57) 79
Real estate and other 959 985 151
---------------- ---------------- ----------------
Net realized gains on
investments $10,818 $28,645 $4,770
================ ================ ================
During 1998, 1997 and 1996, fixed maturities and marketable equity securities
available-for-sale were sold with fair values at the date of sale of
$5,018,240,000, $2,281,886,000 and $334,482,000, respectively. Gross gains of
$44,314,000, $41,017,000 and $7,248,000 and gross losses of $34,455,000,
$13,357,000 and $2,629,000 were realized on those sales in 1998, 1997 and 1996,
respectively.
At December 31, 1998 and 1997, bonds with an amortized cost of $29,081,000 and
$28,434,000, respectively, were on deposit with various state insurance
departments to meet regulatory requirements.
- --------------------------------------------------------------------------------
Corporate Benefits 88
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. DERIVATIVE FINANCIAL INSTRUMENTS HELD FOR PURPOSES OTHER THAN TRADING
The Company enters into interest rate and currency contracts, including swaps,
caps, floors, and options, to reduce and manage risks which include the risk of
a change in the value, yield, price, cash flows, exchange rates or quantity of,
or a degree of exposure with respect to assets, liabilities, or future cash
flows which the Company has acquired or incurred. Hedge accounting practices are
supported by cash flow matching, scenario testing and duration matching.
Interest rate swap agreements generally involve the exchange of fixed and
floating interest payments over the life of the agreement without an exchange of
the underlying principal amount. Currency swap agreements generally involve the
exchange of local and foreign currency payments over the life of the agreements
without an exchange of the underlying principal amount. Interest rate cap and
interest rate floor agreements owned entitle the Company to receive payments to
the extent reference interest rates exceed or fall below strike levels in the
contracts based on the notional amounts.
Premiums paid for the purchase of interest rate contracts are included in other
assets and are being amortized to interest expense over the remaining terms of
the contracts or in a manner consistent with the financial instruments being
hedged. Amounts paid or received, if any, from such contracts are included in
interest expense or income. Accrued amounts payable to or receivable from
counterparties are included in other liabilities or assets.
Gains and losses as a result of early terminations of interest rate contracts
are amortized to investment income over the remaining term of the items being
hedged to the extent the hedge is considered to be effective; otherwise, they
are recognized upon termination.
Interest rate contracts that are matched or otherwise designated to be
associated with other financial instruments are recorded at fair value if the
related financial instruments mature, are sold, or are otherwise terminated or
if the interest rate contracts cease to be effective hedges.
The Company manages the potential credit exposure from interest rate contracts
through careful evaluation of the counterparties' credit standing, collateral
agreements, and master netting agreements.
The Company is exposed to credit loss in the event of nonperformance by
counterparties on interest rate contracts; however, the Company does not
anticipate nonperformance by any of these counterparties. The amount of such
exposure is generally the unrealized gains in such contacts.
- --------------------------------------------------------------------------------
Corporate Benefits 89
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. DERIVATIVE FINANCIAL INSTRUMENTS HELD FOR PURPOSES OTHER THAN TRADING
(CONTINUED)
The table below summarizes the Company's interest rate contracts at December 31,
1998 and 1997 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1998
----------------------------------------------------------------
NOTIONAL AMORTIZED FAIR BALANCE
AMOUNT COST VALUE SHEET
---------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Interest rate contracts:
Swaps $ 767,873 $ (155) $(2,952) $(2,952)
Swaps-affiliates 734,176 155 5,440 5,440
---------------- --------------- --------------- ---------------
Total swaps 1,502,049 - 2,488 2,488
Caps owned 560,000 312 11 11
---------------- --------------- --------------- ---------------
Total caps owned 560,000 312 11 11
Floors owned 422,485 (72) 3,768 3,768
Floors owned-affiliates 8,485 72 167 167
---------------- --------------- --------------- ---------------
Total floors owned 430,970 - 3,935 3,935
Options owned 418,300 5,268 2,664 2,664
Options owned-affiliates 418,300 (5,268) (2,664) (2,664)
---------------- --------------- --------------- ---------------
Total options owned 836,600 - - -
---------------- --------------- --------------- ---------------
Total derivatives $3,329,619 $ 312 $ 6,434 $ 6,434
================ =============== =============== ===============
</TABLE>
- --------------------------------------------------------------------------------
Corporate Benefits 90
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. DERIVATIVE FINANCIAL INSTRUMENTS HELD FOR PURPOSES OTHER THAN TRADING
(CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------------------------------------------------
NOTIONAL AMORTIZED FAIR BALANCE
AMOUNT COST VALUE SHEET
---------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Interest rate contracts:
Swaps $ 913,630 $ (185) $ (625) $ (625)
Swaps-affiliates 879,745 185 1,429 1,429
---------------- --------------- --------------- ---------------
Total swaps 1,793,375 - 804 804
Caps owned 760,000 986 766 766
---------------- --------------- --------------- ---------------
Total caps owned 760,000 986 766 766
Floors owned 354,000 311 1,730 1,730
Floors owned-affiliates - - - -
---------------- --------------- --------------- ---------------
Total floors owned 354,000 311 1,730 1,730
Options owned 384,300 6,192 4,312 4,312
Options owned-affiliates 384,300 (6,192) (4,312) (4,312)
---------------- --------------- --------------- ---------------
Total options owned 768,600 - - -
---------------- --------------- --------------- ---------------
Total derivatives $3,675,975 $1,297 $3,300 $3,300
================ =============== =============== ===============
</TABLE>
4. CONCENTRATIONS OF CREDIT RISK
At December 31, 1998, the Company held less-than-investment-grade bonds
classified as available-for-sale with a carrying value and market value of
$277,793,000. These holdings amounted to 7.9% of the Company's investments in
fixed maturity securities and 2.8% of total assets. The holdings of
less-than-investment-grade bonds are widely diversified and of satisfactory
quality based on the Company's investment policies and credit standards.
At December 31, 1998, the Company's mortgages involved a concentration of
properties located in Florida (15.5%), Texas (9.7%), and Georgia (7.5%). The
remaining mortgages relate to properties located in 35 other states. The
portfolio is well diversified, covering many different types of income-producing
properties on which the Company has first mortgage liens. The maximum mortgage
outstanding on any individual property is $16,068,000.
- --------------------------------------------------------------------------------
Corporate Benefits 91
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. EMPLOYEE BENEFIT PLANS
PENSION PLANS AND POSTRETIREMENT BENEFITS
The Company has a qualified noncontributory defined benefit retirement plan
covering substantially all employees. In addition, the Company maintains a
non-qualified unfunded Supplemental Employees' Retirement Plan (SERP). In
addition to providing pension plans, the Company provides certain health care
and life insurance benefits for retired employees.
The funded status and the amounts recognized in the balance sheets for the
defined benefit plans and other postretirement benefit plans are as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31
1998 1997
-------------------------------------- ------------------------------------
QUALIFIED POST- QUALIFIED POST-
PLAN SERP RETIREMENT PLAN SERP RETIREMENT
------------ ------------ ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Projected benefit obligation $(38,685) $(8,320) $ (8,949) $(37,801) $(9,154) $ (7,590)
Less plan assets at fair value 47,230 - - 40,150 - -
------------ ------------ ------------- ------------ ------------ -------------
Plan assets in excess (deficient)
of projected benefit ogligation $ 8,545 $(8,320) $ (8,949) $ 2,349 $(9,154) $ (7,590)
============ ============ ============= ============ ============ =============
Net asset (liability) $ 1,240 $(4,918) $(12,044) $ 1,322 $(4,135) $(11,369)
============ ============ ============= ============ ============ =============
</TABLE>
As of December 31, 1998 and 1997, the Company recognized an additional minimum
net liability on the SERP of $1,482,000 and $3,848,000, respectively, as this
plan is unfunded and the actuarial present value of accumulated benefit
obligation exceeds the net pension liability. Prior to 1998, the change in the
additional minimum net liability was reported in net income. Beginning in 1998,
the change in the additional minimum net liability is recorded net of tax as a
component of other comprehensive income directly in stockholder's equity, net of
tax.
- --------------------------------------------------------------------------------
Corporate Benefits 92
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. EMPLOYEE BENEFIT PLANS (CONTINUED)
The net periodic pension cost, employer contributions, plan participant
contributions, and benefits paid for the defined benefit plans are as follows
(in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
-------------------------------- -------------------------------- -------------------------------
QUALIFIED POST- QUALIFIED POST- QUALIFIED POST-
PLAN SERP RETIREMENT PLAN SERP RETIREMENT PLAN SERP RETIREMENT
---------- --------- ----------- --------- --------- ------------ --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net periodic pension
expense $ 82 $1,109 $893 $607 $1,502 $755 $ 390 $1,109 $669
Employer contributions - 325 218 - 317 198 - 320 Not
available
Plan participants'
contributions - - 77 - - 71 - - Not
available
Benefits paid 890 325 296 811 317 268 1,466 320 187
</TABLE>
The information for employer and plan participant contributions to the
postretirement plan for 1996 is not readily available.
Assumptions used in accounting for the defined benefit plans as of December 31,
1998, 1997, and 1996 were as follows:
1998 1997 1996
--------------------------------
Weighted-average discount rate 6.75% 7.25% 7.50%
Rate of increase in compensation level 4.00% 4.25% 4.50%
Expected long-term rate of return on assets 9.50% 9.50% 9.50%
Plan assets of the defined benefit plans at December 31, 1998 are invested
primarily in U.S. government securities, corporate bonds, mutual funds, mortgage
loans, money market funds and common stock.
The annual assumed rate of increase in the per capita cost of covered benefits
(i.e., health care cost trend rate) for the medical plan is 9.75% graded to
5.25% over 9 years. The health care cost trend rate assumption has a significant
effect on the amounts reported. For example, increasing the assumed health care
cost trend rates by one percentage point in each year would increase the
accumulated postretirement benefit obligation for the medical plan as of
December 31, 1998 by $1,015,000 and the aggregate of the service and interest
cost components of net periodic postretirement benefit cost for 1998 by
$136,000. Decreasing the assumed health care cost trend rates by one percentage
point in each year would increase the accumulated postretirement benefit
obligation for the medical plan as of December 31, 1998 by $(862,000) and the
aggregate of the service and
- --------------------------------------------------------------------------------
Corporate Benefits 93
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. EMPLOYEE BENEFIT PLANS (CONTINUED)
interest cost components of net periodic postretirement benefit cost for 1998 by
$(113,000).
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 6.75% at December 31, 1998 and 7.50% at
December 31, 1997 and December 31, 1996.
401(K) PLAN
The Security Life of Denver Insurance Company Savings Incentive Plan (the
Savings Plan) is a defined contribution plan which is available to substantially
all home office employees. Participants may make contributions to the plan
through salary reductions up to a maximum of $10,000 for 1998, and $9,500 for
both 1997 and 1996. Such contributions are not currently taxable to the
participants. The Company matches 100% of the first 3% of participants'
contributions, plus 50% of contributions which exceed 3% of participants'
compensation, subject to a maximum matching percentage of 4 1/2% of the
individual's salary. Company matching contributions were $1,343,000 for 1998,
$1,211,000 for 1997, and $1,143,000 for 1996.
Plan assets of the Savings Plan at December 31, 1998 are invested in a group
deposit administration contract (the Contract) with the Company, various stock
funds maintained by the Principal Financial Group, and loans to participants.
The Contract is a policyholder liability of the Company and had a balance of
$27.8 million and $26.6 million at December 31, 1998 and 1997, respectively.
6. SEPARATE ACCOUNTS
Separate account assets and liabilities represent funds segregated by the
Company for the benefit of certain policy and contract holders who bear the
investment risk. Revenues and expenses on the separate account assets and
related liabilities equal the benefits paid to the separate account policy and
contract holders, and are excluded from the amounts reported in the consolidated
statements of income except for fees charged for administration services and
mortality risk.
- --------------------------------------------------------------------------------
Corporate Benefits 94
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. LEASES
In 1997, the Company terminated a significant operating lease agreement relating
to electronic data processing equipment due to outsourcing of computer
operations. The Company incurred $4,819,000 in lease expense in 1997 related to
that agreement prior to termination. The Company does not have any other
significant lease obligations. Total rental expense for all equipment leases was
approximately $0, $4,993,000 and $6,151,000 for the years ended December 31,
1998, 1997 and 1996, respectively.
8. REINSURANCE
The Company is involved in both ceded and assumed reinsurance with other
companies for the purpose of diversifying risk and limiting exposure on larger
risks. As of December 31, 1998, the Company's retention limit for acceptance of
risk on life insurance policies had been set at various levels up to $1,500,000.
Reinsurance premiums, commissions, and expense reimbursements related to
reinsured business are accounted for on bases consistent with those used in
accounting for the original policies issued and the terms of the reinsurance
contracts. Reserves are based on the terms of the reinsurance contracts, and are
consistent with the risks assumed.
To the extent that the assuming companies become unable to meet their
obligations under these treaties, the Company remains contingently liable to its
policyholders for the portion retroceded. Consequently, allowances are
established for amounts deemed uncollectible. To minimize its exposure to
significant losses from retrocessionaire insolvencies, the Company evaluates the
financial condition of the retrocessionaire and monitors concentrations of
credit risk arising from similar geographic regions, activities, or economic
characteristics of the reinsurers. The use of reinsurance pools with
retrocessionaires also minimizes the Company's exposure to significant losses
from retrocessionaire insolvencies.
The Company assumes and cedes, on a coinsurance basis, guaranteed investment
contracts (GICs) to and from affiliates under common ownership. As of December
31, 1998, $2.7 billion of an affiliate's invested assets were held in trust
pursuant to these agreements.
- --------------------------------------------------------------------------------
Corporate Benefits 95
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. REINSURANCE (CONTINUED)
These GIC transactions are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
---------------------------- ---------------------------
POLICY POLICY
DEPOSITS LIABILITIES DEPOSITS LIABILITIES
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Direct (nonaffiliated) $2,773,952 $3,112,460 $1,673,471 $2,527,957
Assumed from Life Insurance Company of
Georgia - 97,552 35,000 106,698
------------- -------------- ------------- --------------
2,773,952 3,210,012 1,708,471 2,634,655
Ceded to Columbine Life Insurance Company (2,547,743) (2,696,409) (1,479,371) (2,231,118)
Ceded to Life Insurance Company of Georgia (225,083) (512,477) (116,100) (403,537)
Ceded to First Columbine Life Insurance
Company (1,126) (1,126) - -
============= ============== ============= ==============
Net $ - $ - $ 113,000 $ -
============= ============== ============= ==============
</TABLE>
Ceded GIC policy liabilities totaling $3,210 and $2,635 million as of December
31, 1998 and 1997, respectively, are classified as part of prepaid reinsurance
premiums.
During 1998 and 1997, the Company had ceded blocks of insurance under
reinsurance treaties to provide funds for financial and other purposes. These
reinsurance transactions, generally known as "financial reinsurance," represent
financial arrangements and, in accordance with generally accepted accounting
principles, are not reflected in the accompanying financial statements except
for the risk fees paid to or received from reinsurers. Financial reinsurance has
the effect of increasing current statutory surplus while reducing future
statutory surplus as amounts are recaptured from reinsurers. During 1998, the
Company entered into a new financial reinsurance contract with an affiliated
company.
9. INCOME TAXES
The Company files a consolidated federal income tax return with its parent and
other U.S. affiliates and subsidiaries, with the exception of First ING. The
affiliated companies that join in the filing of the consolidated federal income
tax return have an agreement for the allocation of taxes between members that
join in the consolidated return. The agreement specifies that the separate
return payable or the separate return receivable of each member will be the
federal income tax payable or receivable that the member would have had for the
period had it filed a separate return.
- --------------------------------------------------------------------------------
Corporate Benefits 96
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
9. INCOME TAXES (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities are as follows (in thousands):
DECEMBER 31
1998 1997
---------------- --------------
Deferred tax liabilities:
Deferred policy acquisition costs $(272,970) $(239,678)
Unrealized gains/losses (42,556) (51,312)
---------------- --------------
Total deferred tax liabilities (315,526) (290,990)
Deferred tax assets:
Benefit reserves and surplus relief 102,177 111,610
Tax-basis deferred policy acquisition costs 83,836 71,241
Investment income 13,712 13,459
Unearned investment income - 9,208
Nonqualified deferred compensation 14,667 14,129
Postretirement employee benefits 2,501 3,979
Separate accounts 18,775 8,571
Other, net 19,796 4,964
---------------- --------------
Total deferred tax assets 255,464 237,161
---------------- --------------
Net deferred tax liabilities $ (60,062) $ (53,829)
================ ==============
The components of federal income tax expense consist of the following (in
thousands):
DECEMBER 31
1998 1997 1996
----------------- ----------------- ----------------
Current $24,111 $37,542 $10,340
Deferred 9,955 9,477 11,536
================= ================= ================
Federal income tax expense $34,066 $47,019 $21,876
================= ================= ================
The Company's effective income tax rate did not vary significantly from the
statutory federal income tax rate.
- --------------------------------------------------------------------------------
Corporate Benefits 97
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
9. INCOME TAXES (CONTINUED)
The Company had net income tax payments (receipts) of $18,283,000 during 1998,
$55,468,000 during 1997, and $(61,467,000) during 1996 for current income tax
payments and settlements of prior year returns.
The Policyholder's Surplus Account is an accumulation of certain special
deductions for income tax purposes and a portion of the "gains from operations"
which were not subject to current taxation under the Life Insurance Tax Act of
1959. At December 31, 1984, the balance in this account for tax return purposes
was approximately $70,800,000. The Tax Reform Act of 1984 provides that no
further accumulations will be made in this account. If amounts accumulated in
the Policyholder's Surplus Account exceed certain limits, or if distributions to
the stockholder exceed amounts in the Stockholder's Surplus Account, to the
extent of such excess amount or excess distributions, as determined for income
tax purposes, amounts in the Policyholder's Surplus Account would become subject
to income tax at rates in effect at that time. Should this occur, the maximum
tax which would be paid at the current tax rate is $24,780,000. The Company does
not anticipate any such action or foresee any events which would result in such
tax; accordingly, a deferred tax liability has not been established.
10. LONG-TERM DEBT
Long-term indebtedness to related parties for $100,000,000 represents the
cumulative cash draws on a $100,000,000 commitment from ING America Insurance
Holdings, Inc. through December 31, 1998. This subordinated note bears interest
at a variable rate equal to the prevailing rate for 10-year U.S. Treasury Bonds
plus 1/4% adjusted annually.
The repayment of this note requires approval of the Commissioner of Insurance of
the State of Colorado and is payable only out of surplus funds of the Company
and only at such time as the surplus of the Company, after payment is made, does
not fall below the prescribed level.
The principal and interest is scheduled to be repaid in five annual installments
beginning April 15, 2000 and continuing through April 15, 2004, with the option
of prepaying any outstanding principal and accrued interest. As of December 31,
1998, the Company accrued interest of $5,387,000. Upon receiving approval from
the Commissioner of Insurance of the State of Colorado, the Company made a
$5,128,000 payment for accrued interest during 1998. The Company recognized
interest expense of $5,387,000, $5,096,000, and $3,644,000 for the years ended
December 31, 1998, 1997, and 1996, respectively.
- --------------------------------------------------------------------------------
Corporate Benefits 98
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
10. LONG-TERM DEBT (CONTINUED)
Future minimum payments, assuming a current effective interest rate of 5.41%,
are as follows (in thousands):
TOTAL PAYMENTS
YEAR
----------------------------------------- -----------------
2000 $ 25,946
2001 25,946
2002 25,946
2003 25,946
2004 25,946
-----------------
Total 129,730
Less imputed interest (29,730)
=================
Present value of payments $100,000
=================
11. STATUTORY ACCOUNTING INFORMATION AND PRACTICES
Security Life and its insurance subsidiaries prepare their statutory-basis
financial statements in accordance with accounting practices prescribed or
permitted by their state of domicile. "Prescribed" statutory accounting
practices include state laws, regulations and general administrative rules, as
well as a variety of publications of the National Association of Insurance
Commissioners (NAIC). "Permitted" statutory accounting practices encompass all
accounting practices that are not prescribed; such practices may differ from
state to state, from company to company within the state, and may change in the
future.
During 1998, the NAIC completed the process of codifying statutory accounting
practices ("Codification"). Codification will likely change, to some extent,
prescribed statutory accounting practices and may result in changes to the
accounting practices that Security Life uses to prepare its statutory-basis
financial statements. Codification will require adoption by the various states
before it becomes the prescribed statutory basis of accounting for insurance
companies domiciled within those states. Accordingly, before Codification
becomes effective for Security Life, the State of Colorado must adopt
Codification as the prescribed basis of accounting on which domestic insurers
must report their statutory-basis results to the Insurance Department. At this
time it is unknown whether the State of Colorado will adopt Codification.
- --------------------------------------------------------------------------------
Corporate Benefits 99
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
11. STATUTORY ACCOUNTING INFORMATION AND PRACTICES (CONTINUED)
Prescribed statutory reserve methodology does not fully encompass universal
life-type products. The NAIC, however, has promulgated a Model Regulation
regarding Universal Life Reserves. The Colorado Division of Insurance has not
adopted the regulation, but requires that reserves be held which are at least as
great as those required by Colorado Statutes. The NAIC UL Model Regulation is
used by the Company to provide reserves consistent with the principles of this
article. Because the reserves satisfy the requirements prescribed by the State
of Colorado for the valuation of universal life insurance, the Company is
permitted to compute reserves in accordance with this model regulation.
The NAIC prescribes Risk-Based Capital (RBC) requirements for life/health
insurance companies. At December 31, 1998, the Company exceeded all minimum RBC
requirements.
Combined capital and surplus, determined in accordance with statutory accounting
practices (SAP), was $386,607,000 and $403,239,000 at December 31, 1998 and
1997, respectively. Combined net income, determined in accordance with SAP, was
$11,712,000, $22,261,000, and $9,141,000 for the years ended December 31, 1998,
1997, and 1996, respectively.
Security Life is required to maintain a minimum total statutory capital and
surplus in the state of domicile of $1,500,000. Midwestern United is required to
maintain minimum statutory capital of $200,000 and surplus of $250,000 in the
state of domicile. First ING is required to maintain minimum statutory capital
of $1,000,000 and paid-in surplus of at least 50% of paid-in capital in the
state of domicile. Each company exceeded its respective minimum statutory
capital and surplus requirements at December 31, 1998. Additionally, the amount
of dividends which can be paid by each company to its stockholder without prior
approval of the various state insurance departments is generally limited to the
greater of 10% of statutory surplus or the statutory net gain from operations.
- --------------------------------------------------------------------------------
Corporate Benefits 100
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
12. FAIR VALUES OF FINANCIAL INSTRUMENTS
In cases where quoted market prices are not available, fair values are based on
estimates using present value or other valuation techniques. Those techniques
are significantly affected by the assumptions used, including the discount rate
and estimates of future cash flows. In that regard, the derived fair value
estimates cannot be substantiated by comparison to independent markets and, in
many cases, could not be realized in immediate settlement of the instruments.
Accordingly, the aggregate fair value amounts presented do not represent the
underlying value of the Company. Life insurance liabilities that contain
mortality risk and all nonfinancial instruments are excluded from disclosure
requirements. However, the fair values of liabilities under all insurance
contracts are taken into consideration in the Company's overall management of
interest rate risk, such that the Company's exposure to changing interest rates
is minimized through the matching of investment maturities with amounts due
under insurance contracts.
- --------------------------------------------------------------------------------
Corporate Benefits 101
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
12. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
The carrying amounts and fair values of the Company's financial instruments at
December 31, 1998 and 1997 are summarized below (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
------------------------------- ---------------------------------
CARRYING CARRYING AMOUNT
AMOUNT FAIR VALUE FAIR VALUE
--------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C>
ASSETS
Fixed maturities (Note 2) $3,503,530 $3,503,530 $3,152,355 $3,152,355
Equity securities (Note 2) 8,400 8,400 8,019 8,019
Mortgage loans 784,108 832,629 576,620 630,019
Policy loans 925,623 925,623 875,405 875,405
Short-term investments 747 747 55,466 55,466
Cash 31,644 31,644 22,299 22,299
Indebtedness from
related parties 4,339 4,339 2,443 2,443
Separate account assets 423,474 423,474 263,035 263,035
LIABILITIES
Supplemental contracts
without life contingencies 3,966 3,966 4,240 4,240
Other policyholder funds left
on deposit 98,638 98,638 99,545 99,545
Individual and group
annuities, net of reinsurance 87,096 86,007 43,313 43,077
Indebtedness to related
parties 13,755 13,755 7,704 7,704
Long-term debt to related
parties 100,000 100,000 75,000 75,000
Accrued interest on
long-term debt to related
parties 5,387 5,387 5,128 5,128
Separate account liabilities 423,474 423,474 263,035 263,035
</TABLE>
- --------------------------------------------------------------------------------
Corporate Benefits 102
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
12. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
The carrying values of all other financial instruments approximate their fair
values.
The following methods and assumptions were used by the Company in estimating the
"fair value" disclosures for financial instruments:
FIXED MATURITIES AND EQUITY SECURITIES: The fair values for fixed maturities
(including redeemable preferred stocks) are based on quoted market prices,
where available. For fixed maturities not actively traded, fair values are
estimated using values obtained from independent pricing services or, in the
case of private placements and collateralized mortgage obligations and other
mortgage derivative investments, are estimated by discounting expected
future cash flows. The discount rates used vary as a function of factors
such as yield, credit quality and maturity which fall within a range between
4.5% - 14.0% over the total portfolio.
The fair values of equity securities are based on quoted market prices.
MORTGAGE LOANS: Estimated market values for commercial real estate loans are
generated using a discounted cash flow approach. Loans in good standing are
discounted using interest rates determined by U.S. Treasury yields on
December 31 and spreads implied by independent published surveys. The same
is applied on new loans with similar characteristics. The amortizing
features of all loans are incorporated in the valuation. Where data on
option features is available, option values are determined using a binomial
valuation method, and are incorporated into the mortgage valuation.
Restructured loans are valued in the same manner; however, these are
discounted at a greater spread to reflect increased risk.
All residential loans are valued at their outstanding principal balances,
which approximate their fair values.
POLICY LOANS: The carrying amounts reported in the balance sheets for these
financial instruments approximate their fair values.
DERIVATIVE FINANCIAL INSTRUMENTS: Fair values for on-balance-sheet
derivative financial instruments (caps and floors) and off-balance-sheet
derivative financial instruments (swaps) are based on broker/dealer
valuations or on internal discounted cash flow pricing models taking into
account current cash flow assumptions and the counterparties' credit
standing.
- --------------------------------------------------------------------------------
Corporate Benefits 103
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
12. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
OTHER INVESTMENT-TYPE INSURANCE CONTRACTS: The fair values of the Company's
deferred annuity contracts are estimated based on the cash surrender value.
The carrying values of other liabilities, including immediate annuities,
dividend accumulations, supplementary contracts without life contingencies
and premium deposits, approximate their fair values.
OFF-BALANCE-SHEET INSTRUMENTS: The Company accepted additional deposits on
existing synthetic guaranteed investment contracts in the amounts of
$66,480,000 and $1,000,000 in 1998 and 1997, respectively, from trustees of
401(k) plans. Pursuant to the terms of these contracts, the trustees own and
retain the assets related to these contracts. Such assets had a value of
$433,689,000 and $493,757,000 at December 31, 1998 and 1997, respectively.
Under synthetic guaranteed investment contracts, the synthetic issuer may
assume interest rate risk on individual plan participant initiated
withdrawals from stable value options of 401(k) plans. Approximately 85% of
the synthetic guaranteed investment contract book values are on a
participating basis and have a credited interest rate reset mechanism which
passes such interest rate risk to plan participants.
LETTERS OF CREDIT
The Company is the beneficiary of letters of credit totaling $197,254,000
which have a market value to the Company of $0 and two lines of credit
totaling $284,471,000 which have a market value to the Company of $0 (see
Note 14).
13. COMMITMENTS AND CONTINGENCIES
The Company is a party to pending or threatened lawsuits arising from the normal
conduct of its business. Due to the climate in insurance and business
litigation, suits against the Company sometimes include substantial additional
claims, consequential damages, punitive damages and other similar types of
relief. While it is not possible to forecast the outcome of such litigation, it
is the opinion of management that the disposition of such lawsuits will not have
a material adverse effect on the Company's financial position or interfere with
its operations.
- --------------------------------------------------------------------------------
Corporate Benefits 104
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
13. COMMITMENTS AND CONTINGENCIES (CONTINUED)
In 1998, the Company established an accrued liability of $40,000,000 related to
certain potential litigation similar to that faced by other major life insurers.
This litigation relates to sales practices of interest sensitive policies. The
Company is vigorously defending its position in these cases. No such litigation
reserve was established in 1997. While it is not possible to forecast the
outcome of such litigation, it is the opinion of management that the disposition
of such lawsuits will not have a material adverse effect on the Company's
financial position or interfere with its operations.
14. OTHER FINANCING ARRANGEMENTS
The Company has a $144,471,000 line of credit issued by the Company's parent to
provide short-term liquidity. The Company has an additional non-affiliated line
of credit of $140,000,000, also to provide short-term liquidity, which expires
July 31, 1999. The amount of funds available under this line is reduced by
borrowings of certain affiliates also party to the agreement. There were no
outstanding borrowings under either of these agreements at December 31, 1998 or
1997. The weighted-average balance outstanding of short-term debt was $37.5
million during 1998. The weighted-average interest rate paid on this debt during
1998 was 5.63% (see Note 12).
The Company is the beneficiary of letters of credit totaling $197,254,000 that
were established in accordance with the terms of reinsurance agreements. Such
letters of credit are unconditional, irrevocable, and provide for automatic
renewal for the following year at December 31. The letters were unused during
both 1998 and 1997.
15. YEAR 2000 (UNAUDITED)
Security Life of Denver Insurance Company is aware of the computer problems that
may exist surrounding the Year 2000. Senior management is committed to
ensuring that information processing and delivery systems will be Year 2000
compliant before December 31, 1999.
The project team implemented the Year 2000 project plan which included the
analysis, remediation and testing of the in-house source code. The Company
followed normal project management methodology, including communication with
senior management on a monthly and as-needed basis and allocated sufficient
funds to ensure Year 2000 processing capabilities. On June 28, 1999, the
analysis, remediation and system testing phases of the plan were completed.
Precautionary testing will continue throughout 1999.
- --------------------------------------------------------------------------------
Corporate Benefits 105
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
15. YEAR 2000 (UNAUDITED) (CONTINUED)
Security Life has developed a contingency plan with established manual
procedures that senior management believes will allow the Company to continue
to do business in the event its systems do not perform as expected. However,
there is no assurance Security Life's efforts will be successful, or that
interaction with other service providers will not impact its services.
- --------------------------------------------------------------------------------
Corporate Benefits 106
<PAGE>
Financial Statements
Security Life Separate Account L1
of Security Life of Denver
Insurance Company
Years ended December 31, 1998, 1997 and 1996
with Report of Independent Auditors
- --------------------------------------------------------------------------------
Corporate Benefits 107
<PAGE>
Security Life Separate Account L1
Financial Statements
Years ended December 31, 1998, 1997 and 1996
CONTENTS
Report of Independent Auditors ..............................................109
Audited Financial Statements
Statement of Net Assets .....................................................110
Statements of Operations ....................................................117
Statements of Changes in Net Assets .........................................136
Notes to Financial Statements ...............................................155
- --------------------------------------------------------------------------------
Corporate Benefits 108
<PAGE>
[Logo of Ernst & Young LLP appears here]
Report of Independent Auditors
Policyholders
Security Life Separate Account L1 of
Security Life of Denver Insurance Company
We have audited the accompanying statement of net assets of Security Life
Separate Account L1 (comprising, respectively, the Neuberger Berman Advisers
Management Trust (comprising the Limited Maturity Bond, Growth, Government
Income and Partners Divisions) ("NB"), the Alger American Fund (comprising the
American Small Capitalization, American MidCap Growth, American Growth and
American Leveraged AllCap Divisions) ("Alger"), the Fidelity Variable Insurance
Products Fund and Variable Insurance Products Fund II (comprising the Asset
Manager, Growth, Overseas, Money Market and Index 500 Divisions) ("Fidelity"),
the INVESCO Variable Investment Funds, Inc. (comprising the Total Return,
Industrial Income, High Yield, Utilities and Small Company Growth Divisions)
("INVESCO"), the Van Eck Worldwide Trust (comprising the Worldwide Balanced,
Worldwide Hard Assets, Worldwide Bond, Worldwide Emerging Markets and Worldwide
Real Estate Divisions) ("Van Eck") and AIM Advisors, Inc. (comprising the
Capital Appreciation and Government Securities Divisions) ("AIM")) as of
December 31, 1998, and the related statements of operations and changes in net
assets for each of the three years in the period then ended. These financial
statements are the responsibility of the Separate Account's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1998, by correspondence with
the transfer agents. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Security Life Separate Account
L1 at December 31, 1998, and the results of its operations and changes in its
net assets for each of the three years in the period then ended, in conformity
with generally accepted accounting principles.
Denver, Colorado /s/ Ernst & Young LLP
April 5, 1999
- --------------------------------------------------------------------------------
Corporate Benefits 109
<PAGE>
Security Life Separate Account L1
Statement of Net Assets
December 31, 1998
<TABLE>
<CAPTION>
Total
All Total Total Total Total Total Total
Divisions NB Alger Fidelity INVESCO Van Eck AIM
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets
Investments in mutual funds at
market value (Note C) $305,030,106 $47,067,751 $54,428,521 $168,285,929 $29,630,753 $1,816,999 $3,800,153
------------ ----------- ----------- ------------ ----------- ---------- ----------
Net assets $305,030,106 $47,067,751 $54,428,521 $168,285,929 $29,630,753 $1,816,999 $3,800,153
============ =========== =========== ============ =========== ========== ==========
POLICYHOLDER RESERVES
Reserves attributable to the
policyholders (Note B) $305,030,106 $47,067,751 $54,428,521 $168,285,929 $29,630,753 $1,816,999 $3,800,153
------------ ----------- ----------- ------------ ----------- ---------- ----------
TOTAL POLICYHOLDER RESERVES $305,030,106 $47,067,751 $54,428,521 $168,285,929 $29,630,753 $1,816,999 $3,800,153
============ =========== =========== ============ =========== ========== ==========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Corporate Benefits 110
<PAGE>
Security Life Separate Account L1
Statement of Net Assets (continued)
December 31, 1998
<TABLE>
<CAPTION>
NB
-------------------------------------------------------------------------------
Total Limited Government
NB Maturity Bond Growth Income Partners
--------------- ----------------- --------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Assets
Investments in mutual funds at
market value (Note C) $ 47,067,751 $ 15,578,349 $ 9,026,160 $ -- $22,463,242
------------ -------------- ------------ ----------- -----------
Net assets $ 47,067,751 $ 15,578,349 $ 9,026,160 $ -- $22,463,242
============ ============== ============ =========== ===========
POLICYHOLDER RESERVES
Reserves attributable to the
policyholders (Note B) $ 47,067,751 $ 15,578,349 $ 9,026,160 $ -- $22,463,242
------------ -------------- ------------ ----------- -----------
TOTAL POLICYHOLDER RESERVES $ 47,067,751 $ 15,578,349 $ 9,026,160 $ -- $22,463,242
============ ============== ============ =========== ===========
Number of division units outstanding
(Note G) 1,245,559.121 447,486.376 -- 986,298.018
============== ============ =========== ===========
Value per divisional unit $ 12.51 $ 20.17 $ -- $ 22.78
============== ============ =========== ===========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Corporate Benefits 111
<PAGE>
Security Life Separate Account L1
Statement of Net Assets (continued)
December 31, 1998
<TABLE>
<CAPTION>
Alger
------------------------------------------------------------------------
American American American
Total Small MidCap American Leveraged
Alger Capitalization Growth Growth AllCap
---------------------------------------------------------- ------------
<S> <C> <C> <C> <C> <C>
Assets
Investments in mutual funds at
market value (Note C) $54,428,521 $15,503,371 $9,220,207 $22,903,614 $6,801,329
----------- ----------- ---------- ----------- ----------
Net assets $54,428,521 $15,503,371 $9,220,207 $22,903,614 $6,801,329
=========== =========== ========== =========== ==========
POLICYHOLDER RESERVES
Reserves attributable to the
policyholders (Note B) $54,428,521 $15,503,371 $9,220,207 $22,903,614 $6,801,329
----------- ----------- ---------- ----------- ----------
TOTAL POLICYHOLDER RESERVES $54,428,521 $15,503,371 $9,220,207 $22,903,614 $6,801,329
=========== =========== ========== =========== ==========
Number of division units outstanding
(Note G) 838,692.418 402,532.472 923,696.066 221,642.446
=========== ========== =========== ==========
Value per divisional unit $ 18.49 $ 22.91 $ 24.80 $ 30.69
=========== ========== =========== ==========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Corporate Benefits 112
<PAGE>
Security Life Separate Account L1
Statement of Net Assets (continued)
December 31, 1998
<TABLE>
<CAPTION>
Fidelity
----------------------------------------------------------------------------------------------
Total Asset Money
Fidelity Manager Growth Overseas Market Index 500
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Investments in mutual funds at
market value (Note C) $168,285,929 $10,237,279 $32,900,142 $20,581,887 $18,412,252 $86,154,369
------------ ----------- ----------- ----------- ----------- -----------
Net assets $168,285,929 $10,237,279 $32,900,142 $20,581,887 $18,412,252 $86,154,369
============ =========== =========== =========== =========== ===========
POLICYHOLDER RESERVES
Reserves attributable to the
policyholders (Note B) $168,285,929 $10,237,279 $32,900,142 $20,581,887 $18,412,252 $86,154,369
------------ ----------- ----------- ----------- ----------- -----------
TOTAL POLICYHOLDER RESERVES $168,285,929 $10,237,279 $32,900,142 $20,581,887 $18,412,252 $86,154,369
============ =========== =========== =========== =========== ===========
Number of division units outstanding
(Note G) 600,255.213 1,293,480.338 1,429,659.907 1,526,404.399 3,215,990.519
=========== =========== =========== =========== ===========
Value per divisional unit $ 17.05 $ 25.44 $ 14.40 $ 12.06 $ 26.79
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Corporate Benefits 113
<PAGE>
Security Life Separate Account L1
Statement of Net Assets (continued)
December 31, 1998
<TABLE>
<CAPTION>
INVESCO
----------------------------------------------------------------------------------------
Small
Total Total Industrial Company
INVESCO Return Income High Yield Utilities Growth
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Investments in mutual funds at
market value (Note C) $ 29,630,753 $ 8,105,328 $10,853,005 $ 7,882,782 $ 2,040,960 $ 748,678
------------ ----------- ----------- ----------- ----------- -----------
Net assets $ 29,630,753 $ 8,105,328 $10,853,005 $ 7,882,782 $ 2,040,960 $ 748,678
============ =========== =========== =========== =========== ===========
POLICYHOLDER RESERVES
Reserves attributable to the
policyholders (Note B) $ 29,630,753 $ 8,105,328 $10,853,005 $ 7,882,782 $ 2,040,960 $ 748,678
------------ ----------- ----------- ----------- ----------- -----------
TOTAL POLICYHOLDER RESERVES $ 29,630,753 $ 8,105,328 $10,853,005 $ 7,882,782 $ 2,040,960 $ 748,678
============ =========== =========== =========== =========== ===========
Number of division units outstanding
(Note G) 450,557.216 473,616.752 486,858.648 110,379.616 67,506.441
=========== =========== =========== =========== ===========
Value per divisional unit $ 17.99 $ 22.92 $ 16.19 $ 18.49 $ 11.09
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Corporate Benefits 114
<PAGE>
Security Life Separate Account L1
Statement of Net Assets (continued)
December 31, 1998
<TABLE>
<CAPTION>
Van Eck
-----------------------------------------------------------------------------------------
Worldwide Worldwide Worldwide
Total Worldwide Hard Worldwide Emerging Real
Van Eck Balanced Assets Bond Markets Estate
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Investments in mutual funds at
market value (Note C) $ 1,816,999 $ -- $ 1,073,755 $ 205,807 $ 461,156 $ 76,281
------------ ----------- ----------- ----------- ----------- -----------
Net assets $ 1,816,999 $ -- $ 1,073,755 $ 205,807 $ 461,156 $ 76,281
============ =========== =========== =========== =========== ===========
POLICYHOLDER RESERVES
Reserves attributable to the
policyholders (Note B) $ 1,816,999 $ -- $ 1,073,755 $ 205,807 $ 461,156 $ 76,281
------------ ----------- ----------- ----------- ----------- -----------
TOTAL POLICYHOLDER RESERVES $ 1,816,999 $ -- $ 1,073,755 $ 205,807 $ 461,156 $ 76,281
============ =========== =========== =========== =========== ===========
Number of division units outstanding
(Note G) 0.000 132,513.824 18,656.317 67,354.295 8,765.232
=========== =========== =========== =========== ===========
Value per divisional unit $ 0.00 $ 8.10 $ 11.03 $ 6.85 $ 8.70
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Corporate Benefits 115
<PAGE>
Security Life Separate Account L1
Statement of Net Assets (continued)
December 31, 1998
AIM
---------------------------------------
Total Capital Government
AIM Appreciation Securities
---------------------------------------
Assets
Investments in mutual funds at
market value (Note C) $3,800,153 $1,204,436 $2,595,717
---------- ---------- ----------
Net assets $3,800,153 $1,204,436 $2,595,717
========== ========== ==========
POLICYHOLDER RESERVES
Reserves attributable to the
policyholders (Note B) $3,800,153 $1,204,436 $2,595,717
---------- ---------- ----------
TOTAL POLICYHOLDER RESERVES $3,800,153 $1,204,436 $2,595,717
========== ========== ==========
Number of division units outstanding
(Note G) 105,457.867 246,150.062
========== ==========
Value per divisional unit $ 11.42 $ 10.55
========== ==========
See accompanying notes.
- --------------------------------------------------------------------------------
Corporate Benefits 116
<PAGE>
Security Life Separate Account L1
Statement of Operations
Year Ended December 31, 1998
<TABLE>
<CAPTION>
Total
All Total Total Total Total Total Total
Divisions NB Alger Fidelity INVESCO Van Eck AIM
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income
Dividends from mutual funds $17,747,833 $ 4,273,690 $ 4,617,072 $ 6,943,854 $1,625,860 $ 189,620 $ 97,737
Less valuation period deductions
(Note B) 1,740,661 291,487 290,412 971,160 162,321 11,393 13,888
----------- ----------- ----------- ----------- ---------- --------- --------
Net investment income (loss) 16,007,172 3,982,203 4,326,660 5,972,694 1,463,539 178,227 83,849
----------- ----------- ----------- ----------- ---------- --------- --------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gains (losses) on
investments 8,536,274 347,823 1,685,294 6,403,348 355,780 (260,570) 4,599
Net unrealized gains (losses) on
investments 18,766,977 (2,323,636) 5,825,800 15,230,082 248,681 (368,037) 154,087
----------- ----------- ----------- ----------- ---------- --------- --------
Net realized and unrealized gains
(losses) on investments 27,303,251 (1,975,813) 7,511,094 21,633,430 604,461 (628,607) 158,686
----------- ----------- ----------- ----------- ---------- --------- --------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS $43,310,423 $ 2,006,390 $11,837,754 $27,606,124 $2,068,000 $(450,380) $242,535
=========== =========== =========== =========== ========== ========= ========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Corporate Benefits 117
<PAGE>
Security Life Separate Account L1
Statement of Operations (continued)
Year Ended December 31, 1998
<TABLE>
<CAPTION>
NB
-------------------------------------------------------------------------
Total Limited Government
NB Maturity Bond Growth Income Partners
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment income
Dividends from mutual funds $ 4,273,690 $ 409,268 $1,579,109 $ 136,565 $2,148,748
Less valuation period deductions
(Note B) 291,487 87,183 52,660 3,213 148,431
----------- ----------- ---------- ----------- ----------
Net investment income (loss) 3,982,203 322,085 1,526,449 133,352 2,000,317
----------- ----------- ---------- ----------- ----------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gains (losses) on
investments 347,823 10,003 (264,148) (53,894) 655,862
Net unrealized gains (losses) on
investments (2,323,636) 59,369 (81,576) (60,954) (2,240,475)
----------- ----------- ---------- ----------- ----------
Net realized and unrealized gains
(losses) on investments (1,975,813) 69,372 (345,724) (114,848) (1,584,613)
----------- ----------- ---------- ----------- ----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS $ 2,006,390 $ 391,457 $1,180,725 $ 18,504 $ 415,704
=========== =========== ========== =========== ==========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Corporate Benefits 118
<PAGE>
Security Life Separate Account L1
Statement of Operations (continued)
Year Ended December 31, 1998
<TABLE>
<CAPTION>
Alger
-------------------------------------------------------------------------
American American American
Total Small MidCap American Leveraged
Alger Capitalization Growth Growth AllCap
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment income
Dividends from mutual funds $ 4,617,072 $ 1,681,373 $ 593,045 $ 2,196,712 $ 145,942
Less valuation period deductions
(Note B) 290,412 95,588 53,316 113,376 28,132
----------- ----------- ---------- ----------- ----------
Net investment income (loss) 4,326,660 1,585,785 539,729 2,083,336 117,810
----------- ----------- ---------- ----------- ----------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gains (losses) on
investments 1,685,294 186,963 316,932 915,872 265,527
Net unrealized gains (losses) on
investments 5,825,800 166,990 1,022,340 3,099,428 1,537,042
----------- ----------- ---------- ----------- ----------
Net realized and unrealized gains
(losses) on investments 7,511,094 353,953 1,339,272 4,015,300 1,802,569
----------- ----------- ---------- ----------- ----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS $11,837,754 $ 1,939,738 $1,879,001 $ 6,098,636 $1,920,379
=========== =========== ========== =========== ==========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Corporate Benefits 119
<PAGE>
Security Life Separate Account L1
Statement of Operations (continued)
Year Ended December 31, 1998
<TABLE>
<CAPTION>
Fidelity
---------------------------------------------------------------------------------------
Total Asset Money
Fidelity Manager Growth Overseas Market Index 500
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment income
Dividends from mutual funds $ 6,943,854 $ 808,986 $ 2,663,618 $ 1,015,626 $ 830,137 $ 1,625,487
Less valuation period deductions
(Note B) 971,160 63,669 183,002 129,504 116,932 478,053
------------ ----------- ----------- ----------- ----------- -----------
Net investment income (loss) 5,972,694 745,317 2,480,616 886,122 713,205 1,147,434
------------ ----------- ----------- ----------- ----------- -----------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gains (losses) on
investments 6,403,348 20,247 1,534,000 298,379 -- 4,550,722
Net unrealized gains (losses) on
investments 15,230,082 315,702 4,444,805 707,398 -- 9,762,177
------------ ----------- ----------- ----------- ----------- -----------
Net realized and unrealized gains
(losses) on investments 21,633,430 335,949 5,978,805 1,005,777 -- 14,312,899
------------ ----------- ----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS $ 27,606,124 $ 1,081,266 $ 8,459,421 $ 1,891,899 $ 713,205 $15,460,333
============ =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Corporate Benefits 120
<PAGE>
Security Life Separate Account L1
Statement of Operations (continued)
Year Ended December 31, 1998
<TABLE>
<CAPTION>
INVESCO
-------------------------------------------------------------------------------------------
Small
Total Total Industrial Company
INVESCO Return Income High Yield Utilities Growth
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment income
Dividends from mutual funds $ 1,625,860 $ 312,534 $ 514,174 $ 769,805 $ 29,058 $ 289
Less valuation period deductions
(Note B) 162,321 40,898 60,678 49,140 10,730 875
------------ ----------- ----------- ----------- ----------- -----------
Net investment income (loss) 1,463,539 271,636 453,496 720,665 18,328 (586)
------------ ----------- ----------- ----------- ----------- -----------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gains (losses) on
investments 355,780 136,473 342,342 (151,382) 35,245 (6,898)
Net unrealized gains (losses) on
investments 248,681 73,689 359,519 (541,125) 282,500 74,098
------------ ----------- ----------- ----------- ----------- -----------
Net realized and unrealized gains
(losses) on investments 604,461 210,162 701,861 (692,507) 317,745 67,200
------------ ----------- ----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS $ 2,068,000 $ 481,798 $ 1,155,357 $ 28,158 $ 336,073 $ 66,614
============ =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Corporate Benefits 121
<PAGE>
Security Life Separate Account L1
Statement of Operations (continued)
Year Ended December 31, 1998
<TABLE>
<CAPTION>
Van Eck
-----------------------------------------------------------------------------------------
Worldwide Worldwide Worldwide
Total Worldwide Hard Worldwide Emerging Real
Van Eck Balanced Assets Bond Markets Estate
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment income
Dividends from mutual funds $ 189,620 $ 45,674 $ 143,946 $ -- $ -- $ --
Less valuation period deductions
(Note B) 11,393 1,050 8,170 212 1,736 225
------------ ----------- ----------- ----------- ----------- -----------
Net investment income (loss) 178,227 44,624 135,776 (212) (1,736) (225)
------------ ----------- ----------- ----------- ----------- -----------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gains (losses) on
investments (260,570) 4,682 (162,110) 130 (101,436) (1,836)
Net unrealized gains (losses) on
investments (368,037) (23,403) (395,698) 3,953 47,140 (29)
------------ ----------- ----------- ----------- ----------- -----------
Net realized and unrealized gains
(losses) on investments (628,607) (18,721) (557,808) 4,083 (54,296) (1,865)
------------ ----------- ----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS $ (450,380) $ 25,903 $ (422,032) $ 3,871 $ (56,032) $ (2,090)
============ =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Corporate Benefits 122
<PAGE>
Security Life Separate Account L1
Statement of Operations (continued)
Year Ended December 31, 1998
AIM
---------------------------------------
Total Capital Government
AIM Appreciation Securities
---------------------------------------
Investment income
Dividends from mutual funds $ 97,737 $ 27,109 $ 70,628
Less valuation period deductions
(Note B) 13,888 3,056 10,832
---------- ---------- ----------
Net investment income (loss) 83,849 24,053 59,796
---------- ---------- ----------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gains (losses) on
investments 4,599 (3,315) 7,914
Net unrealized gains (losses) on
investments 154,087 119,225 34,862
---------- ---------- ----------
Net realized and unrealized gains
(losses) on investments 158,686 115,910 42,776
---------- ---------- ----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS $ 242,535 $ 139,963 $ 102,572
========== ========== ==========
See accompanying notes.
- --------------------------------------------------------------------------------
Corporate Benefits 123
<PAGE>
Security Life Separate Account L1
Statement of Operations
Year Ended December 31, 1997
<TABLE>
<CAPTION>
Total
All Total Total Total Total Total
Divisions NB Alger Fidelity INVESCO Van Eck
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment income
Dividends from mutual funds $ 4,158,702 $ 678,740 $ 323,895 $ 2,094,346 $ 1,039,818 $ 21,903
Less valuation period deductions
(Note B) 813,630 135,310 141,930 461,022 67,625 7,743
------------ ----------- ----------- ----------- ----------- -----------
Net investment income (loss) 3,345,072 543,430 181,965 1,633,324 972,193 14,160
------------ ----------- ----------- ----------- ----------- -----------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gains (losses) on
investments 3,199,375 406,286 894,818 1,320,426 523,956 53,889
Net unrealized gains (losses) on
investments 10,643,150 2,273,595 1,647,989 6,476,412 298,662 (53,508)
------------ ----------- ----------- ----------- ----------- -----------
Net realized and unrealized gains
(losses) on investments 13,842,525 2,679,881 2,542,807 7,796,838 822,618 381
------------ ----------- ----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS $ 17,187,597 $ 3,223,311 $ 2,724,772 $ 9,430,162 $ 1,794,811 $ 14,541
============ =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Corporate Benefits 124
<PAGE>
Security Life Separate Account L1
Statement of Operations (continued)
Year Ended December 31, 1997
<TABLE>
<CAPTION>
NB
--------------------------------------------------------------------------
Total Limited Government
NB Maturity Bond Growth Income Partners
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment income
Dividends from mutual funds $ 678,740 $ 156,667 $ 183,497 $ 72,086 $ 266,490
Less valuation period deductions
(Note B) 135,310 33,725 24,959 10,366 66,260
----------- ----------- ---------- ----------- ----------
Net investment income (loss) 543,430 122,942 158,538 61,720 200,230
----------- ----------- ---------- ----------- ----------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gains (losses) on
investments 406,286 (20,056) 14,997 25,762 385,583
Net unrealized gains (losses) on
investments 2,273,595 159,151 533,906 26,882 1,553,656
----------- ----------- ---------- ----------- ----------
Net realized and unrealized gains
(losses) on investments 2,679,881 139,095 548,903 52,644 1,939,239
----------- ----------- ---------- ----------- ----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS $ 3,223,311 $ 262,037 $ 707,441 $ 114,364 $2,139,469
=========== =========== ========== =========== ==========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Corporate Benefits 125
<PAGE>
Security Life Separate Account L1
Statement of Operations (continued)
Year Ended December 31, 1997
<TABLE>
<CAPTION>
Alger
------------------------------------------------------------------------
American American American
Total Small MidCap American Leveraged
Alger Capitalization Growth Growth AllCap
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment income
Dividends from mutual funds $ 323,895 $ 218,789 $ 55,945 $ 49,161 $ --
Less valuation period deductions
(Note B) 141,930 51,004 28,138 48,785 14,003
----------- ----------- ---------- ----------- ----------
Net investment income (loss) 181,965 167,785 27,807 376 (14,003)
----------- ----------- ---------- ----------- ----------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gains (losses) on
investments 894,818 114,651 228,363 237,727 314,077
Net unrealized gains (losses) on
investments 1,647,989 483,518 246,489 970,056 (52,074)
----------- ----------- ---------- ----------- ----------
Net realized and unrealized gains
(losses) on investments 2,542,807 598,169 474,852 1,207,783 262,003
----------- ----------- ---------- ----------- ----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS $ 2,724,772 $ 765,954 $ 502,659 $ 1,208,159 $ 248,000
=========== =========== ========== =========== ===========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Corporate Benefits 126
<PAGE>
Security Life Separate Account L1
Statement of Operations (continued)
Year Ended December 31, 1997
<TABLE>
<CAPTION>
Fidelity
----------------------------------------------------------------------------------------
Total Asset Money
Fidelity Manager Growth Overseas Market Index 500
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment income
Dividends from mutual funds $ 2,094,346 $ 204,696 $ 274,868 $ 451,874 $ 764,538 $ 398,370
Less valuation period deductions
(Note B) 461,022 27,097 91,298 60,714 107,253 174,660
------------ ----------- ----------- ----------- ----------- -----------
Net investment income (loss) 1,633,324 177,599 183,570 391,160 657,285 223,710
------------ ----------- ----------- ----------- ----------- -----------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gains (losses) on
investments 1,320,426 33,000 662,436 332,544 -- 292,446
Net unrealized gains (losses) on
investments 6,476,412 350,408 1,347,793 (305,456) -- 5,083,667
------------ ----------- ----------- ----------- ----------- -----------
Net realized and unrealized gains
(losses) on investments 7,796,838 383,408 2,010,229 27,088 -- 5,376,113
------------ ----------- ----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS $ 9,430,162 $ 561,007 $ 2,193,799 $ 418,248 $ 657,285 $ 5,599,823
============ =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Corporate Benefits 127
<PAGE>
Security Life Separate Account L1
Statement of Operations (continued)
Year Ended December 31, 1997
<TABLE>
<CAPTION>
INVESCO
---------------------------------------------------------------------------
Total Total Industrial
INVESCO Return Income High Yield Utilities
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment income
Dividends from mutual funds $ 1,039,818 $ 76,461 $ 417,376 $ 519,369 $ 26,612
Less valuation period deductions
(Note B) 67,625 12,921 27,525 23,478 3,701
----------- ----------- ---------- ----------- ----------
Net investment income (loss) 972,193 63,540 389,851 495,891 22,911
----------- ----------- ---------- ----------- ----------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gains (losses) on
investments 523,956 46,241 116,951 269,799 90,965
Net unrealized gains (losses) on
investments 298,662 203,429 324,767 (253,231) 23,697
----------- ----------- ---------- ----------- ----------
Net realized and unrealized gains
(losses) on investments 822,618 249,670 441,718 16,568 114,662
----------- ----------- ---------- ----------- ----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS $ 1,794,811 $ 313,210 $ 831,569 $ 512,459 $ 137,573
=========== =========== ========== =========== ===========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Corporate Benefits 128
<PAGE>
Security Life Separate Account L1
Statement of Operations (continued)
Year Ended December 31, 1997
Van Eck
------------------------------------------
Total Worldwide Worldwide
Van Eck Balanced Hard Assets
------------------------------------------
INVESTMENT INCOME
Dividends from mutual funds $ 21,903 $ 9,006 $ 12,897
Less valuation period deductions
(Note B) 7,743 3,329 4,414
---------- ---------- ----------
Net investment income (loss) 14,160 5,677 8,483
---------- ---------- ----------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gains (losses) on
investments 53,889 37,785 16,104
Net unrealized gains (losses) on
investments (53,508) 4,122 (57,630)
---------- ---------- ----------
Net realized and unrealized gains
(losses) on investments 381 41,907 (41,526)
---------- ---------- ----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS $ 14,541 $ 47,584 $ (33,043)
========== ========== ==========
See accompanying notes.
- --------------------------------------------------------------------------------
Corporate Benefits 129
<PAGE>
Security Life Separate Account L1
Statement of Operations
Year Ended December 31, 1996
<TABLE>
<CAPTION>
Total
All Total Total Total Total Total
Divisions NB Alger Fidelity INVESCO Van Eck
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends from mutual funds $ 1,183,779 $ 292,143 $ 56,842 $ 593,973 $ 238,653 $ 2,168
Less valuation period deductions
(Note B) 241,127 50,116 44,898 128,637 14,752 2,724
------------ ----------- ----------- ----------- ----------- -----------
Net investment income (loss) 942,652 242,027 11,944 465,336 223,901 (556)
------------ ----------- ----------- ----------- ----------- -----------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gains (losses) on
investments 401,852 86,478 62,058 97,833 143,358 12,125
Net unrealized gains (losses) on
investments 2,675,307 557,274 396,915 1,736,167 (43,084) 28,035
------------ ----------- ----------- ----------- ----------- -----------
Net realized and unrealized gains
(losses) on investments 3,077,159 643,752 458,973 1,834,000 100,274 40,160
------------ ----------- ----------- ----------- ----------- -----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 4,019,811 $ 885,779 $ 470,917 $ 2,299,336 $ 324,175 $ 39,604
============ =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Corporate Benefits 130
<PAGE>
Security Life Separate Account L1
Statement of Operations (continued)
Year Ended December 31, 1996
<TABLE>
<CAPTION>
NB
--------------------------------------------------------------------------
Total Limited Government
NB Maturity Bond Growth Income Partners
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends from mutual funds $ 292,143 $ 127,305 $ 76,287 $ 35,420 $ 53,131
Less valuation period deductions
(Note B) 50,116 13,218 9,400 8,882 18,616
----------- ----------- ---------- ----------- ----------
Net investment income (loss) 242,027 114,087 66,887 26,538 34,515
----------- ----------- ---------- ----------- ----------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gains (losses) on
investments 86,478 (16,561) (22,601) 3,867 121,773
Net unrealized gains (losses) on
investments 557,274 (29,330) 65,061 443 521,100
----------- ----------- ---------- ----------- ----------
Net realized and unrealized gains
(losses) on investments 643,752 (45,891) 42,460 4,310 642,873
----------- ----------- ---------- ----------- ----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 885,779 $ 68,196 $ 109,347 $ 30,848 $ 677,388
=========== =========== ========== =========== ==========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Corporate Benefits 131
<PAGE>
Security Life Separate Account L1
Statement of Operations (continued)
Year Ended December 31, 1996
<TABLE>
<CAPTION>
Alger
---------------------------------------------------------------------------
American American American
Total Small MidCap American Leveraged
Alger Capitalization Growth Growth AllCap
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment income
Dividends from mutual funds $ 56,842 $ 7,668 $ 10,435 $ 37,109 $ 1,630
Less valuation period deductions
(Note B) 44,898 18,457 7,398 16,087 2,956
----------- ----------- ---------- ----------- ----------
Net investment income (loss) 11,944 (10,789) 3,037 21,022 (1,326)
----------- ----------- ---------- ----------- ----------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gains (losses) on
investments 62,058 8,187 9,936 22,907 21,028
Net unrealized gains (losses) on
investments 396,915 58,340 89,398 227,107 22,070
----------- ----------- ---------- ----------- ----------
Net realized and unrealized gains
(losses) on investments 458,973 66,527 99,334 250,014 43,098
----------- ----------- ---------- ----------- ----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 470,917 $ 55,738 $ 102,371 $ 271,036 $ 41,772
=========== =========== ========== =========== ==========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Corporate Benefits 132
<PAGE>
Security Life Separate Account L1
Statement of Operations (continued)
Year Ended December 31, 1996
<TABLE>
<CAPTION>
Fidelity
-------------------------------------------------------------------------------------
Total Asset Money
Fidelity Manager Growth Overseas Market Index 500
------------- ------------- -------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Investment income
Dividends from mutual funds $ 593,973 $ 9,800 $ 109,786 $ 27,966 $ 246,349 $ 200,072
Less valuation period deductions
(Note B) 128,637 3,818 25,455 16,972 35,006 47,386
------------ ----------- ----------- ----------- ----------- -----------
Net investment income (loss) 465,336 5,982 84,331 10,994 211,343 152,686
------------ ----------- ----------- ----------- ----------- -----------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gains (losses) on
investments 97,833 7,905 9,661 34,235 -- 46,032
Net unrealized gains (losses) on
investments 1,736,167 63,068 273,435 238,529 -- 1,161,135
------------ ----------- ----------- ----------- ----------- -----------
Net realized and unrealized gains
(losses) on investments 1,834,000 70,973 283,096 272,764 -- 1,207,167
------------ ----------- ----------- ----------- ----------- -----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 2,299,336 $ 76,955 $ 367,427 $ 283,758 $ 211,343 $ 1,359,853
============ =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Corporate Benefits 133
<PAGE>
Security Life Separate Account L1
Statement of Operations (continued)
Year Ended December 31, 1996
<TABLE>
<CAPTION>
INVESCO
-----------------------------------------------------------------------
Total Total Industrial
INVESCO Return Income High Yield Utilities
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment income
Dividends from mutual funds $ 238,653 $ 25,285 $ 93,816 $ 114,676 $ 4,876
Less valuation period deductions
(Note B) 14,752 3,402 4,272 6,357 721
----------- ----------- ---------- ----------- ----------
Net investment income (loss) 223,901 21,883 89,544 108,319 4,155
----------- ----------- ---------- ----------- ----------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gains (losses) on
investments 143,358 28,264 30,929 82,830 1,335
Net unrealized gains (losses) on
investments (43,084) 10,956 (7,082) (53,402) 6,444
----------- ----------- ---------- ----------- ----------
Net realized and unrealized gains
(losses) on investments 100,274 39,220 23,847 29,428 7,779
----------- ----------- ---------- ----------- ----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 324,175 $ 61,103 $ 113,391 $ 137,747 $ 11,934
=========== =========== ========== =========== ==========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Corporate Benefits 134
<PAGE>
Security Life Separate Account L1
Statement of Operations (continued)
Year Ended December 31, 1996
Van Eck
----------------------------------------
Total Worldwide Worldwide
Van Eck Balanced Hard Assets
----------------------------------------
INVESTMENT INCOME
Dividends from mutual funds $ 2,168 $ 169 $ 1,999
Less valuation period deductions
(Note B) 2,724 1,304 1,420
---------- ---------- ----------
Net investment income (loss) (556) (1,135) 579
---------- ---------- ----------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gains (losses) on
investments 12,125 2,984 9,141
Net unrealized gains (losses) on
investments 28,035 19,343 8,692
---------- ---------- ----------
Net realized and unrealized gains
(losses) on investments 40,160 22,327 17,833
---------- ---------- ----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 39,604 $ 21,192 $ 18,412
========== ========== ==========
See accompanying notes.
- --------------------------------------------------------------------------------
Corporate Benefits 135
<PAGE>
Security Life Separate Account L1
Statement of Changes in Net Assets
Year Ended December 31, 1998
<TABLE>
<CAPTION>
Total
All Total Total Total Total Total Total
Divisions NB Alger Fidelity INVESCO Van Eck AIM
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net investment income (loss) $ 16,007,172 $ 3,982,203 $ 4,326,660 $ 5,972,694 $ 1,463,539 $ 178,227 $ 83,849
Net realized gains (losses) on
investments 8,536,274 347,823 1,685,294 6,403,348 355,780 (260,570) 4,599
Net unrealized gains (losses) on
investments 18,766,977 (2,323,636) 5,825,800 15,230,082 248,681 (368,037) 154,087
------------ ----------- ----------- ------------ ----------- ---------- ----------
Increase (decrease) in net assets
from operations 43,310,423 2,006,390 11,837,754 27,606,124 2,068,000 (450,380) 242,535
------------ ----------- ----------- ------------ ----------- ---------- ----------
CHANGES FROM PRINCIPAL
TRANSACTIONS
Net premiums 128,820,440 12,563,792 13,089,164 92,335,231 8,092,294 875,501 1,864,458
Cost of insurance and
administrative charges (14,458,798) (2,063,802) (2,525,683) (8,200,381) (1,481,570) (108,634) (78,728)
Benefit payments (306,862) (11,220) (26,492) (259,989) (9,161) -- --
Surrenders (10,842,736) (725,767) (859,454) (8,654,377) (586,533) (15,198) (1,407)
Net transfers among divisions
(including the loan division and
guaranteed interest division in
the general account) (3,936,799) 8,461,193 4,831,250 (25,231,056) 6,011,967 216,552 1,773,295
Other (41,582) (87,331) (18,626) 54,208 9,107 1,060 --
------------ ----------- ----------- ------------ ----------- ---------- ----------
Increase (decrease) from principal
transactions 99,233,663 18,136,865 14,490,159 50,043,636 12,036,104 969,281 3,557,618
------------ ----------- ----------- ------------ ----------- ---------- ----------
Total increase (decrease) in net assets 142,544,086 20,143,255 26,327,913 77,649,760 14,104,104 518,901 3,800,153
Net assets at beginning of year 162,486,020 26,924,496 28,100,608 90,636,169 15,526,649 1,298,098 --
------------ ----------- ----------- ------------ ----------- ---------- ----------
Net assets at end of year $305,030,106 $47,067,751 $54,428,521 $168,285,929 $29,630,753 $1,816,999 $3,800,153
============ =========== =========== ============ =========== ========== ==========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Corporate Benefits 136
<PAGE>
Security Life Separate Account L1
Statement of Changes in Net Assets (continued)
Year Ended December 31, 1998
<TABLE>
<CAPTION>
NB
-----------------------------------------------------------------------------
Total Limited Government
NB Maturity Bond Growth Income Partners
--------------- --------------- ------------- --------------- ---------------
INCREASE (DECREASE) IN NET ASSETS
<S> <C> <C> <C> <C> <C>
OPERATIONS
Net investment income (loss) $ 3,982,203 $ 322,085 $1,526,449 $ 133,352 $2,000,317
Net realized gains (losses) on
investments 347,823 10,003 (264,148) (53,894) 655,862
Net unrealized gains (losses) on
investments (2,323,636) 59,369 (81,576) (60,954) (2,240,475)
----------- ----------- ---------- ----------- ----------
Increase (decrease) in net assets
from operations 2,006,390 391,457 1,180,725 18,504 415,704
----------- ----------- ---------- ----------- ----------
CHANGES FROM PRINCIPAL
TRANSACTIONS
Net premiums 12,563,792 3,839,599 2,578,265 31,593 6,114,335
Cost of insurance and
administrative charges (2,063,802) (492,782) (393,894) (14,839) (1,162,287)
Benefit payments (11,220) -- -- -- (11,220)
Surrenders (725,767) (15,922) (419,497) (3,243) (287,105)
Net transfers among divisions
(including the loan division and
guaranteed interest division in
the general account) 8,461,193 5,212,588 513,663 (894,126) 3,629,068
Other (87,331) (31,757) 3,226 (31,566) (27,234)
----------- ----------- ---------- ----------- ----------
Increase (decrease) from principal
transactions 18,136,865 8,511,726 2,281,763 (912,181) 8,255,557
----------- ----------- ---------- ----------- ----------
Total increase (decrease) in net assets 20,143,255 8,903,183 3,462,488 (893,677) 8,671,261
Net assets at beginning of year 26,924,496 6,675,166 5,563,672 893,677 13,791,981
----------- ----------- ---------- ----------- ----------
Net assets at end of year $47,067,751 $15,578,349 $9,026,160 $ -- $22,463,242
=========== =========== ========== =========== ===========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Corporate Benefits 137
<PAGE>
Security Life Separate Account L1
Statement of Changes in Net Assets (continued)
Year Ended December 31, 1998
<TABLE>
<CAPTION>
Alger
----------------------------------------------------------------------------
American American American
Total Small MidCap American Leveraged
Alger Capitalization Growth Growth AllCap
----------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
<S> <C> <C> <C> <C> <C>
OPERATIONS
Net investment income (loss) $ 4,326,660 $ 1,585,785 $ 539,729 $ 2,083,336 $ 117,810
Net realized gains (losses) on
investments 1,685,294 186,963 316,932 915,872 265,527
Net unrealized gains (losses) on
investments 5,825,800 166,990 1,022,340 3,099,428 1,537,042
----------- ----------- ---------- ----------- ----------
Increase (decrease) in net assets
from operations 11,837,754 1,939,738 1,879,001 6,098,636 1,920,379
----------- ----------- ---------- ----------- ----------
CHANGES FROM PRINCIPAL
TRANSACTIONS
Net premiums 13,089,164 4,154,774 2,573,424 5,298,963 1,062,003
Cost of insurance and
administrative charges (2,525,683) (803,988) (473,224) (989,260) (259,211)
Benefit payments (26,492) (14,248) (12,244) -- --
Surrenders (859,454) (196,345) (376,263) (216,867) (69,979)
Net transfers among divisions
(including the loan division and
guaranteed interest division in
the general account) 4,831,250 (35,168) 528,261 3,094,366 1,243,791
Other (18,626) (504) (14,286) 1,597 (5,433)
----------- ----------- ---------- ----------- ----------
Increase (decrease) from principal
transactions 14,490,159 3,104,521 2,225,668 7,188,799 1,971,171
----------- ----------- ---------- ----------- ----------
Total increase (decrease) in net assets 26,327,913 5,044,259 4,104,669 13,287,435 3,891,550
Net assets at beginning of year 28,100,608 10,459,112 5,115,538 9,616,179 2,909,779
----------- ----------- ---------- ----------- ----------
Net assets at end of year $54,428,521 $15,503,371 $9,220,207 $22,903,614 $6,801,329
=========== =========== ========== =========== ==========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Corporate Benefits 138
<PAGE>
Security Life Separate Account L1
Statement of Changes in Net Assets (continued)
Year Ended December 31, 1998
<TABLE>
<CAPTION>
Fidelity
-------------------------------------------------------------------------------------------
Total Asset Money
Fidelity Manager Growth Overseas Market Index 500
-------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net investment income (loss) $ 5,972,694 $ 745,317 $2,480,616 $ 886,122 $ 713,205 $ 1,147,434
Net realized gains (losses) on
investments 6,403,348 20,247 1,534,000 298,379 -- 4,550,722
Net unrealized gains (losses) on
investments 15,230,082 315,702 4,444,805 707,398 -- 9,762,177
------------ ----------- ----------- ----------- ----------- -----------
Increase (decrease) in net assets
from operations 27,606,124 1,081,266 8,459,421 1,891,899 713,205 15,460,333
------------ ----------- ----------- ----------- ----------- -----------
CHANGES FROM PRINCIPAL
TRANSACTIONS
Net premiums 92,335,231 2,713,832 8,443,426 5,709,711 55,421,815 20,046,447
Cost of insurance and
administrative charges (8,200,381) (490,838) (1,358,671) (939,010) (1,769,895) (3,641,967)
Benefit payments (259,989) -- (8,890) (8,379) (240,733) (1,987)
Surrenders (8,654,377) (652,157) (2,494,098) (438,536) (2,335,262) (2,734,324)
Net transfers among divisions
(including the loan division and
guaranteed interest division in
the general account) (25,231,056) 1,440,884 1,798,160 2,169,798 (48,429,964) 17,790,066
Other 54,208 7,219 (14,128) (29,375) 39,827 50,665
------------ ----------- ----------- ----------- ----------- -----------
Increase (decrease) from principal
transactions 50,043,636 3,018,940 6,365,799 6,464,209 2,685,788 31,508,900
------------ ----------- ----------- ----------- ----------- -----------
Total increase (decrease) in net assets 77,649,760 4,100,206 14,825,220 8,356,108 3,398,993 46,969,233
Net assets at beginning of year 90,636,169 6,137,073 18,074,922 12,225,779 15,013,259 39,185,136
------------ ----------- ----------- ----------- ----------- -----------
Net assets at end of year $168,285,929 $10,237,279 $32,900,142 $20,581,887 $18,412,252 $86,154,369
============ =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Corporate Benefits 139
<PAGE>
Security Life Separate Account L1
Statement of Changes in Net Assets (continued)
Year Ended December 31, 1998
<TABLE>
<CAPTION>
INVESCO
-------------------------------------------------------------------------------------------
Small
Total Total Industrial Company
INVESCO Return Income High Yield Utilities Growth
-------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net investment income (loss) $ 1,463,539 $ 271,636 $ 453,496 $ 720,665 $ 18,328 $ (586)
Net realized gains (losses) on
investments 355,780 136,473 342,342 (151,382) 35,245 (6,898)
Net unrealized gains (losses) on
investments 248,681 73,689 359,519 (541,125) 282,500 74,098
------------ ----------- ----------- ----------- ----------- -----------
Increase (decrease) in net assets
from operations 2,068,000 481,798 1,155,357 28,158 336,073 66,614
------------ ----------- ----------- ----------- ----------- -----------
CHANGES FROM PRINCIPAL
TRANSACTIONS
Net premiums 8,092,294 2,104,849 3,170,236 2,297,048 435,105 85,056
Cost of insurance and
administrative charges (1,481,570) (425,176) (567,563) (389,895) (87,692) (11,244)
Benefit payments (9,161) -- (9,161) -- -- --
Surrenders (586,533) (56,509) (192,220) (329,292) (8,210) (302)
Net transfers among divisions
(including the loan division and
Guaranteed interest division in
the general account) 6,011,967 2,955,200 1,315,595 931,519 201,017 608,636
Other 9,107 556 22,617 (18,840) 4,856 (82)
------------ ----------- ----------- ----------- ----------- -----------
Increase (decrease) from principal
transactions 12,036,104 4,578,920 3,739,504 2,490,540 545,076 682,064
------------ ----------- ----------- ----------- ----------- -----------
Total increase (decrease) in net assets 14,104,104 5,060,718 4,894,861 2,518,698 881,149 748,678
Net assets at beginning of year 15,526,649 3,044,610 5,958,144 5,364,084 1,159,811 --
------------ ----------- ----------- ----------- ----------- -----------
Net assets at end of year $ 29,630,753 $ 8,105,328 $10,853,005 $ 7,882,782 $ 2,040,960 $ 748,678
============ =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Corporate Benefits 140
<PAGE>
Security Life Separate Account L1
Statement of Changes in Net Assets (continued)
Year Ended December 31, 1998
<TABLE>
<CAPTION>
Van Eck
-------------------------------------------------------------------------------------------
Worldwide Worldwide Worldwide
Total Worldwide Hard Worldwide Emerging Real
Van Eck Balanced Assets Bonds Markets Estate
-------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net investment income (loss) $ 178,227 $ 44,624 $ 135,776 $ (212) $ (1,736) $ (225)
Net realized gains (losses) on
investments (260,570) 4,682 (162,110) 130 (101,436) (1,836)
Net unrealized gains (losses) on
investments (368,037) (23,403) (395,698) 3,953 47,140 (29)
------------ ----------- ----------- ----------- ----------- -----------
Increase (decrease) in net assets
from operations (450,380) 25,903 (422,032) 3,871 (56,032) (2,090)
------------ ----------- ----------- ----------- ----------- -----------
CHANGES FROM PRINCIPAL
TRANSACTIONS
Net premiums 875,501 (1,347) 571,430 129,336 137,102 38,980
Cost of insurance and
administrative charges (108,634) (9,423) (86,867) (1,544) (7,777) (3,023)
Benefit payments -- -- -- -- -- --
Surrenders (15,198) (3,105) (11,871) -- -- (222)
Net transfers among divisions
(including the loan division and
guaranteed interest division in
the general account) 216,552 (399,466) 111,286 74,151 387,960 42,621
Other 1,060 90 1,059 (7) (97) 15
------------ ----------- ----------- ----------- ----------- -----------
Increase (decrease) from principal
transactions 969,281 (413,251) 585,037 201,936 517,188 78,371
------------ ----------- ----------- ----------- ----------- -----------
Total increase (decrease) in net assets 518,901 (387,348) 163,005 205,807 461,156 76,281
Net assets at beginning of year 1,298,098 387,348 910,750 -- -- --
------------ ----------- ----------- ----------- ----------- -----------
Net assets at end of year $ 1,816,999 $ -- $ 1,073,755 $ 205,807 $ 461,156 $ 76,281
============ =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Corporate Benefits 141
<PAGE>
Security Life Separate Account L1
Statement of Changes in Net Assets (continued)
Year Ended December 31, 1998
AIM
---------------------------------------
Total Capital Government
AIM Appreciation Securities
---------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net investment income (loss) $ 83,849 $ 24,053 $ 59,796
Net realized gains (losses) on
investments 4,599 (3,315) 7,914
Net unrealized gains (losses) on
investments 154,087 119,225 34,862
---------- ---------- ----------
Increase (decrease) in net assets
from operations 242,535 139,963 102,572
---------- ---------- ----------
CHANGES FROM PRINCIPAL
TRANSACTIONS
Net premiums 1,864,458 329,635 1,534,823
Cost of insurance and
administrative charges (78,728) (28,940) (49,788)
Benefit payments -- -- --
Surrenders (1,407) (1,407) --
Net transfers among divisions
(including the loan division and
guaranteed interest division in
the general account) 1,773,295 765,185 1,008,110
Other -- -- --
---------- ---------- ----------
Increase (decrease) from principal
transactions 3,557,618 1,064,473 2,493,145
---------- ---------- ----------
Total increase (decrease) in net assets 3,800,153 1,204,436 2,595,717
Net assets at beginning of year -- -- --
---------- ---------- ----------
Net assets at end of year $3,800,153 $1,204,436 $2,595,717
========== ========== ==========
See accompanying notes.
- --------------------------------------------------------------------------------
Corporate Benefits 142
<PAGE>
Security Life Separate Account L1
Statement of Changes in Net Assets
Year Ended December 31, 1997
<TABLE>
<CAPTION>
Total
All Total Total Total Total Total
Divisions NB Alger Fidelity INVESCO Van Eck
-------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net investment income (loss) $ 3,345,072 $ 543,430 $ 181,965 $ 1,633,324 $ 972,193 $ 14,160
Net realized gains (losses) on
investments 3,199,375 406,286 894,818 1,320,426 523,956 53,889
Net unrealized gains (losses) on
investments 10,643,150 2,273,595 1,647,989 6,476,412 298,662 (53,508)
------------ ----------- ----------- ----------- ----------- -----------
Increase (decrease) in net assets from
operations 17,187,597 3,223,311 2,724,772 9,430,162 1,794,811 14,541
------------ ----------- ----------- ----------- ----------- -----------
CHANGES FROM PRINCIPAL
TRANSACTIONS
Net premiums 104,747,260 5,555,766 6,944,048 89,309,110 2,683,620 254,716
Cost of insurance and
administrative charges (8,284,944) (957,887) (1,466,664) (5,155,026) (614,145) (91,222)
Benefit payments (406,386) (20,591) (63,369) (322,263) (163) --
Surrenders (1,977,696) (146,698) (412,252) (1,294,484) (112,699) (11,563)
Net transfers among divisions
(including the loan division and
guaranteed interest division in
the general account) (6,642,529) 8,721,432 9,006,938 (32,708,946) 7,796,299 541,748
Other 5,891 9,817 11,046 (21,999) 11,180 (4,153)
------------ ----------- ----------- ----------- ----------- -----------
Increase (decrease) from principal
transactions 87,441,596 13,161,839 14,019,747 49,806,392 9,764,092 689,526
------------ ----------- ----------- ----------- ----------- -----------
Total increase (decrease) in net assets 104,629,193 16,385,150 16,744,519 59,236,554 11,558,903 704,067
Net assets at beginning of year 57,856,827 10,539,346 11,356,089 31,399,615 3,967,746 594,031
------------ ----------- ----------- ----------- ----------- -----------
Net assets at end of year $162,486,020 $26,924,496 $28,100,608 $90,636,169 $15,526,649 $ 1,298,098
============ =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Corporate Benefits 143
<PAGE>
Security Life Separate Account L1
Statement of Changes in Net Assets (continued)
Year Ended December 31, 1997
<TABLE>
<CAPTION>
NB
------------------------------------------------------------------------
Total Limited Government
NB Maturity Bond Growth Income Partners
------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
<S> <C> <C> <C> <C> <C>
OPERATIONS
Net investment income (loss) $ 543,430 $ 122,942 $ 158,538 $ 61,720 $ 200,230
Net realized gains (losses) on
investments 406,286 (20,056) 14,997 25,762 385,583
Net unrealized gains (losses) on
investments 2,273,595 159,151 533,906 26,882 1,553,656
----------- ----------- ---------- ----------- ----------
Increase (decrease) in net assets from
operations 3,223,311 262,037 707,441 114,364 2,139,469
----------- ----------- ---------- ----------- ----------
CHANGES FROM PRINCIPAL
TRANSACTIONS
Net premiums 5,555,766 1,332,125 1,158,704 324,257 2,740,680
Cost of insurance and
administrative charges (957,887) (163,472) (219,117) (62,075) (513,223)
Benefit payments (20,591) -- -- -- (20,591)
Surrenders (146,698) (3,761) (71,838) (792) (70,307)
Net transfers among divisions
(including the loan division and
guaranteed interest division in
the general account) 8,721,432 2,758,363 2,141,068 (1,023,987) 4,845,988
Other 9,817 (2,202) 11,700 (6,404) 6,723
----------- ----------- ---------- ----------- ----------
Increase (decrease) from principal
transactions 13,161,839 3,921,053 3,020,517 (769,001) 6,989,270
----------- ----------- ---------- ----------- ----------
Total increase (decrease) in net assets 16,385,150 4,183,090 3,727,958 (654,637) 9,128,739
Net assets at beginning of year 10,539,346 2,492,076 1,835,714 1,548,314 4,663,242
----------- ----------- ---------- ----------- ----------
Net assets at end of year $26,924,496 $ 6,675,166 $5,563,672 $ 893,677 $13,791,981
=========== =========== ========== =========== ===========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Corporate Benefits 144
<PAGE>
Security Life Separate Account L1
Statement of Changes in Net Assets (continued)
Year Ended December 31, 1997
<TABLE>
<CAPTION>
Alger
------------------------------------------------------------------------------
American American American
Total Small MidCap American Leveraged
Alger Capitalization Growth Growth AllCap
--------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
<S> <C> <C> <C> <C> <C>
OPERATIONS
Net investment income (loss) $ 181,965 $ 167,785 $ 27,807 $ 376 $ (14,003)
Net realized gains (losses) on
investments 894,818 114,651 228,363 237,727 314,077
Net unrealized gains (losses) on
investments 1,647,989 483,518 246,489 970,056 (52,074)
----------- ----------- ---------- ----------- ----------
Increase (decrease) in net assets from
operations 2,724,772 765,954 502,659 1,208,159 248,000
----------- ----------- ---------- ----------- ----------
CHANGES FROM PRINCIPAL
TRANSACTIONS
Net premiums 6,944,048 2,630,863 1,276,492 2,334,377 702,316
Cost of insurance and
administrative charges (1,466,664) (526,742) (299,891) (479,902) (160,129)
Benefit payments (63,369) -- (62,593) (776) --
Surrenders (412,252) (255,386) (74,317) (58,850) (23,699)
Net transfers among divisions
(including the loan division and
guaranteed interest division in
the general account) 9,006,938 3,518,384 1,419,061 2,796,911 1,272,582
Other 11,046 (6,069) 19,072 2,082 (4,039)
----------- ----------- ---------- ----------- ----------
Increase (decrease) from principal
transactions 14,019,747 5,361,050 2,277,824 4,593,842 1,787,031
----------- ----------- ---------- ----------- ----------
Total increase (decrease) in net assets 16,744,519 6,127,004 2,780,483 5,802,001 2,035,031
Net assets at beginning of year 11,356,089 4,332,108 2,335,055 3,814,178 874,748
----------- ----------- ---------- ----------- ----------
Net assets at end of year $28,100,608 $10,459,112 $5,115,538 $ 9,616,179 $2,909,779
=========== =========== ========== =========== ==========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Corporate Benefits 145
<PAGE>
Security Life Separate Account L1
Statement of Changes in Net Assets (continued)
Year Ended December 31, 1997
<TABLE>
<CAPTION>
Fidelity
-----------------------------------------------------------------------------------------
Total Asset Money
Fidelity Manager Growth Overseas Market Index 500
-----------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net investment income (loss) $ 1,633,324 $ 177,599 $ 183,570 $ 391,160 $ 657,285 $ 223,710
Net realized gains (losses) on
investments 1,320,426 33,000 662,436 332,544 -- 292,446
Net unrealized gains (losses) on
investments 6,476,412 350,408 1,347,793 (305,456) -- 5,083,667
------------ ----------- ----------- ----------- ----------- -----------
Increase (decrease) in net assets from
operations 9,430,162 561,007 2,193,799 418,248 657,285 5,599,823
------------ ----------- ----------- ----------- ----------- -----------
CHANGES FROM PRINCIPAL
TRANSACTIONS
Net premiums 89,309,110 2,162,759 4,558,270 2,410,373 73,366,740 6,810,968
Cost of insurance and
administrative charges (5,155,026) (242,289) (813,161) (525,615) (2,213,630) (1,360,331)
Benefit payments (322,263) (20,969) (548) (1,233) (257,371) (42,142)
Surrenders (1,294,484) (92,218) (135,829) (91,869) (870,621) (103,947)
Net transfers among divisions
(including the loan division and
guaranteed interest division in
the general account) (32,708,946) 2,215,879 5,219,755 5,730,183 (63,929,591) 18,054,828
Other (21,999) 7,567 3,217 10,563 (35,219) (8,127)
------------ ----------- ----------- ----------- ----------- -----------
Increase (decrease) from principal
transactions 49,806,392 4,030,729 8,831,704 7,532,402 6,060,308 23,351,249
------------ ----------- ----------- ----------- ----------- -----------
Total increase (decrease) in net assets 59,236,554 4,591,736 11,025,503 7,950,650 6,717,593 28,951,072
Net assets at beginning of year 31,399,615 1,545,337 7,049,419 4,275,129 8,295,666 10,234,064
------------ ----------- ----------- ----------- ----------- -----------
Net assets at end of year $ 90,636,169 $ 6,137,073 $18,074,922 $12,225,779 $15,013,259 $39,185,136
============ =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Corporate Benefits 146
<PAGE>
Security Life Separate Account L1
Statement of Changes in Net Assets (continued)
Year Ended December 31, 1997
<TABLE>
<CAPTION>
INVESCO
-------------------------------------------------------------------------------
Total Total Industrial
INVESCO Return Income High Yield Utilities
--------------- --------------- --------------- --------------- ---------------
INCREASE (DECREASE) IN NET ASSETS
<S> <C> <C> <C> <C> <C>
OPERATIONS
Net investment income (loss) $ 972,193 $ 63,540 $ 389,851 $ 495,891 $ 22,911
Net realized gains (losses) on
investments 523,956 46,241 116,951 269,799 90,965
Net unrealized gains (losses) on
investments 298,662 203,429 324,767 (253,231) 23,697
----------- ----------- ---------- ----------- ----------
Increase (decrease) in net assets from
operations 1,794,811 313,210 831,569 512,459 137,573
----------- ----------- ---------- ----------- ----------
CHANGES FROM PRINCIPAL
TRANSACTIONS
Net premiums 2,683,620 517,831 1,250,551 835,890 79,348
Cost of insurance and
administrative charges (614,145) (133,107) (266,208) (177,612) (37,218)
Benefit payments (163) -- -- (163) --
Surrenders (112,699) (28,672) (37,810) (9,783) (36,434)
Net transfers among divisions
(including the loan division and
guaranteed interest division in
the general account) 7,796,299 1,498,300 2,804,344 2,695,587 798,068
Other 11,180 2,581 6,081 2,305 213
----------- ----------- ---------- ----------- ----------
Increase (decrease) from principal
transactions 9,764,092 1,856,933 3,756,958 3,346,224 803,977
----------- ----------- ---------- ----------- ----------
Total increase (decrease) in net assets 11,558,903 2,170,143 4,588,527 3,858,683 941,550
Net assets at beginning of year 3,967,746 874,467 1,369,617 1,505,401 218,261
----------- ----------- ---------- ----------- ----------
Net assets at end of year $15,526,649 $ 3,044,610 $5,958,144 $ 5,364,084 $1,159,811
=========== =========== ========== =========== ==========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Corporate Benefits 147
<PAGE>
Security Life Separate Account L1
Statement of Changes in Net Assets (continued)
Year Ended December 31, 1997
Van Eck
--------------------------------------
Worldwide
Total Worldwide Hard
Van Eck Balanced Assets
---------- ---------- ----------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net investment income (loss) $ 14,160 $ 5,677 $ 8,483
Net realized gains (losses) on
investments 53,889 37,785 16,104
Net unrealized gains (losses) on
investments (53,508) 4,122 (57,630)
---------- ---------- ----------
Increase (decrease) in net assets from
operations 14,541 47,584 (33,043)
---------- ---------- ----------
CHANGES FROM PRINCIPAL
TRANSACTIONS
Net premiums 254,716 65,167 189,549
Cost of insurance and
administrative charges (91,222) (44,774) (46,448)
Benefit payments -- -- --
Surrenders (11,563) (7,995) (3,568)
Net transfers among divisions
(including the loan division and
guaranteed interest division in
the general account) 541,748 (120) 541,868
Other (4,153) (319) (3,834)
---------- ---------- ----------
Increase (decrease) from principal
transactions 689,526 11,959 677,567
---------- ---------- ----------
Total increase (decrease) in net assets 704,067 59,543 644,524
Net assets at beginning of year 594,031 327,805 266,226
---------- ---------- ----------
Net assets at end of year $1,298,098 $ 387,348 $ 910,750
========== ========== ==========
See accompanying notes.
- --------------------------------------------------------------------------------
Corporate Benefits 148
<PAGE>
Security Life Separate Account L1
Statement of Changes in Net Assets
Year Ended December 31, 1996
<TABLE>
<CAPTION>
Total
All Total Total Total Total Total
Divisions NB Alger Fidelity INVESCO Van Eck
-----------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net investment income (loss) $ 942,652 $ 242,027 $ 11,944 $ 465,336 $ 223,901 $ (556)
Net realized gains (losses) on
investments 401,852 86,478 62,058 97,833 143,358 12,125
Net unrealized gains (losses) on
investments 2,675,307 557,274 396,915 1,736,167 (43,084) 28,035
------------ ----------- ----------- ----------- ----------- -----------
Increase in net assets from
operations 4,019,811 885,779 470,917 2,299,336 324,175 39,604
------------ ----------- ----------- ----------- ----------- -----------
CHANGES FROM PRINCIPAL
TRANSACTIONS
Net premiums 44,534,972 2,246,849 2,646,310 38,833,137 609,861 198,815
Cost of insurance and
administrative charges (2,843,666) (378,501) (531,589) (1,733,703) (158,637) (41,236)
Benefit payments (9,641) -- (9,457) (184) -- --
Surrenders (139,851) (10,863) (32,300) (89,374) (5,730) (1,584)
Net transfers among divisions
(including the loan division and
guaranteed interest division in
the general account) (905,917) 3,446,134 6,535,350 (13,409,127) 2,217,943 303,783
Other (25,415) 4,193 (1,186) (29,113) 1,108 (417)
------------ ----------- ----------- ----------- ----------- -----------
Increase from principal
transactions 40,610,482 5,307,812 8,607,128 23,571,636 2,664,545 459,361
------------ ----------- ----------- ----------- ----------- -----------
Total increase in net assets 44,630,293 6,193,591 9,078,045 25,870,972 2,988,720 498,965
Net assets at beginning of year 13,226,534 4,345,755 2,278,044 5,528,643 979,026 95,066
------------ ----------- ----------- ----------- ----------- -----------
Net assets at end of year $ 57,856,827 $10,539,346 $11,356,089 $31,399,615 $ 3,967,746 $ 594,031
============ =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Corporate Benefits 149
<PAGE>
Security Life Separate Account L1
Statement of Changes in Net Assets (continued)
Year Ended December 31, 1996
<TABLE>
<CAPTION>
NB
---------------------------------------------------------------------------
Total Limited Government
NB Maturity Bond Growth Income Partners
---------------------------------------------------------------------------
INCREASE IN NET ASSETS
<S> <C> <C> <C> <C> <C>
OPERATIONS
Net investment income (loss) $ 242,027 $ 114,087 $ 66,887 $ 26,538 $ 34,515
Net realized gains (losses) on
investments 86,478 (16,561) (22,601) 3,867 121,773
Net unrealized gains (losses) on
investments 557,274 (29,330) 65,061 443 521,100
----------- ----------- ---------- ----------- ----------
Increase in net assets from
operations 885,779 68,196 109,347 30,848 677,388
----------- ----------- ---------- ----------- ----------
CHANGES FROM PRINCIPAL
TRANSACTIONS
Net premiums 2,246,849 317,539 634,087 372,680 922,543
Cost of insurance and
administrative charges (378,501) (74,422) (101,596) (56,065) (146,418)
Benefit payments -- -- -- -- --
Surrenders (10,863) (1,157) (2,385) (48) (7,273)
Net transfers among divisions
(including the loan division and
guaranteed interest division in
the general account) 3,446,134 398,684 433,683 368,389 2,245,378
Other 4,193 (272) (579) 41 5,003
----------- ----------- ---------- ----------- ----------
Increase from principal
transactions 5,307,812 640,372 963,210 684,997 3,019,233
----------- ----------- ---------- ----------- ----------
Total increase in net assets 6,193,591 708,568 1,072,557 715,845 3,696,621
Net assets at beginning of year 4,345,755 1,783,508 763,157 832,469 966,621
----------- ----------- ---------- ----------- ----------
Net assets at end of year $10,539,346 $ 2,492,076 $1,835,714 $ 1,548,314 $4,663,242
=========== =========== ========== =========== ==========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Corporate Benefits 150
<PAGE>
Security Life Separate Account L1
Statement of Changes in Net Assets (continued)
Year Ended December 31, 1996
<TABLE>
<CAPTION>
Alger
---------------------------------------------------------------------
American American American
Total Small MidCap American Leveraged
Alger Capitalization Growth Growth AllCap
---------------------------------------------------------------------
Increase (decrease) in net assets
<S> <C> <C> <C> <C> <C>
OPERATIONS
Net investment income (loss) $ 11,944 $ (10,789) $ 3,037 $ 21,022 $ (1,326)
Net realized gains (losses) on
investments 62,058 8,187 9,936 22,907 21,028
Net unrealized gains (losses) on
investments 396,915 58,340 89,398 227,107 22,070
----------- ----------- ---------- ----------- ----------
Increase in net assets from
operations 470,917 55,738 102,371 271,036 41,772
----------- ----------- ---------- ----------- ----------
CHANGES FROM PRINCIPAL
TRANSACTIONS
Net premiums 2,646,310 792,375 410,528 1,189,559 253,848
Cost of insurance and
administrative charges (531,589) (209,010) (92,306) (193,812) (36,461)
Benefit payments (9,457) (4,658) -- -- (4,799)
Surrenders (32,300) (7,839) (10,926) (9,795) (3,740)
Net transfers among divisions
(including the loan division and
guaranteed interest division in
the general account) 6,535,350 2,581,122 1,649,714 1,717,965 586,549
Other (1,186) (3,605) 587 1,213 619
----------- ----------- ---------- ----------- ----------
Increase from principal
transactions 8,607,128 3,148,385 1,957,597 2,705,130 796,016
----------- ----------- ---------- ----------- ----------
Total increase in net assets 9,078,045 3,204,123 2,059,968 2,976,166 837,788
Net assets at beginning of year 2,278,044 1,127,985 275,087 838,012 36,960
----------- ----------- ---------- ----------- ----------
Net assets at end of year $11,356,089 $ 4,332,108 $2,335,055 $ 3,814,178 $ 874,748
=========== =========== ========== =========== ==========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Corporate Benefits 151
<PAGE>
Security Life Separate Account L1
Statement of Changes in Net Assets (continued)
Year Ended December 31, 1996
<TABLE>
<CAPTION>
Fidelity
-----------------------------------------------------------------------------------------
Total Asset Money
Fidelity Manager Growth Overseas Market Index 500
-----------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net investment income (loss) $ 465,336 $ 5,982 $ 84,331 $ 10,994 $ 211,343 $ 152,686
Net realized gains (losses) on
investments 97,833 7,905 9,661 34,235 -- 46,032
Net unrealized gains (losses) on
investments 1,736,167 63,068 273,435 238,529 -- 1,161,135
------------ ----------- ----------- ----------- ----------- -----------
Increase in net assets from
operations 2,299,336 76,955 367,427 283,758 211,343 1,359,853
------------ ----------- ----------- ----------- ----------- -----------
CHANGES FROM PRINCIPAL
TRANSACTIONS
Net premiums 38,833,137 202,285 1,158,382 537,007 36,012,540 922,923
Cost of insurance and
administrative charges (1,733,703) (59,703) (298,466) (145,781) (938,219) (291,534)
Benefit payments (184) -- -- -- -- (184)
Surrenders (89,374) (973) (9,215) (8,511) (56,983) (13,692)
Net transfers among divisions
(including the loan division and
guaranteed interest division in
the general account) (13,409,127) 1,199,005 4,485,230 2,637,971 (28,785,556) 7,054,223
Other (29,113) 277 (47) (13) (27,783) (1,547)
------------ ----------- ----------- ----------- ----------- -----------
Increase from principal
transactions 23,571,636 1,340,891 5,335,884 3,020,673 6,203,999 7,670,189
------------ ----------- ----------- ----------- ----------- -----------
Total increase in net assets 25,870,972 1,417,846 5,703,311 3,304,431 6,415,342 9,030,042
Net assets at beginning of year 5,528,643 127,491 1,346,108 970,698 1,880,324 1,204,022
------------ ----------- ----------- ----------- ----------- -----------
Net assets at end of year $ 31,399,615 $ 1,545,337 $ 7,049,419 $ 4,275,129 $ 8,295,666 $10,234,064
============ =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Corporate Benefits 152
<PAGE>
Security Life Separate Account L1
Statement of Changes in Net Assets (continued)
Year Ended December 31, 1996
<TABLE>
<CAPTION>
INVESCO
----------------------------------------------------------------------
Total Total Industrial
INVESCO Return Income High Yield Utilities
----------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
<S> <C> <C> <C> <C> <C>
OPERATIONS
Net investment income (loss) $ 223,901 $ 21,883 $ 89,544 $ 108,319 $ 4,155
Net realized gains (losses) on
investments 143,358 28,264 30,929 82,830 1,335
Net unrealized gains (losses) on
investments (43,084) 10,956 (7,082) (53,402) 6,444
----------- ----------- ---------- ----------- ----------
Increase in net assets from
operations 324,175 61,103 113,391 137,747 11,934
----------- ----------- ---------- ----------- ----------
CHANGES FROM PRINCIPAL
TRANSACTIONS
Net premiums 609,861 199,674 243,848 121,818 44,521
Cost of insurance and
administrative charges (158,637) (45,283) (55,233) (48,934) (9,187)
Benefit payments -- -- -- -- --
Surrenders (5,730) (2,038) (2,171) (1,386) (135)
Net transfers among divisions
(including the loan division and
guaranteed interest division in
the general account) 2,217,943 506,505 810,269 750,404 150,765
Other 1,108 943 (126) 277 14
----------- ----------- ---------- ----------- ----------
Increase from principal
transactions 2,664,545 659,801 996,587 822,179 185,978
----------- ----------- ---------- ----------- ----------
Total increase in net assets 2,988,720 720,904 1,109,978 959,926 197,912
Net assets at beginning of year 979,026 153,563 259,639 545,475 20,349
----------- ----------- ---------- ----------- ----------
Net assets at end of year $ 3,967,746 $ 874,467 $1,369,617 $ 1,505,401 $ 218,261
=========== =========== ========== =========== ==========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Corporate Benefits 153
<PAGE>
Security Life Separate Account L1
Statement of Changes in Net Assets (continued)
Year Ended December 31, 1996
Van Eck
-----------------------------------------
Total Worldwide Worldwide
Van Eck Balanced Hard Assets
-----------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net investment income (loss) $ (556) $ (1,135) $ 579
Net realized gains (losses) on
investments 12,125 2,984 9,141
Net unrealized gains (losses) on
investments 28,035 19,343 8,692
---------- ---------- ----------
Increase in net assets from
operations 39,604 21,192 18,412
---------- ---------- ----------
CHANGES FROM PRINCIPAL
TRANSACTIONS
Net premiums 198,815 135,181 63,634
Cost of insurance and
administrative charges (41,236) (29,480) (11,756)
Benefit payments -- -- --
Surrenders (1,584) (1,584) --
Net transfers among divisions
(including the loan division and
guaranteed interest division in
the general account) 303,783 126,152 177,631
Other (417) (468) 51
---------- ---------- ----------
Increase from principal
transactions 459,361 229,801 229,560
---------- ---------- ----------
Total increase in net assets 498,965 250,993 247,972
Net assets at beginning of year 95,066 76,812 18,254
---------- ---------- ----------
Net assets at end of year $ 594,031 $ 327,805 $ 266,226
========== ========== ==========
See accompanying notes.
- --------------------------------------------------------------------------------
Corporate Benefits 154
<PAGE>
Security Life Separate Account L1
Notes to Financial Statements
December 31, 1998
NOTE A. ORGANIZATION
Security Life Separate Account L1 (the "Separate Account") was established by
resolution of the Board of Directors of Security Life of Denver Insurance
Company (the "Company") on November 3, 1993. The Separate Account is organized
as a unit investment trust registered with the Securities and Exchange
Commission under the Investment Company Act of 1940.
The Separate Account supports the operations of the FirstLine and Strategic
Advantage Variable Universal Life ("FirstLine and Strategic Advantage") policies
offered by the Company. The Separate Account may be used to support other
variable life policies as they are offered by the Company. The assets of the
Separate Account are the property of the Company. However, the portion of the
Separate Account's assets attributable to the policies will not be used to
satisfy liabilities arising out of any other operations of the Company.
As of December 31, 1998, the Separate Account offered twenty-three investment
divisions available to the policyholders, each of which invests in an
independently managed mutual fund portfolio ("Fund"). The Funds are as follows:
PORTFOLIO MANAGERS/PORTFOLIOS (FUNDS)
Neuberger Berman Management Incorporated (NB)
Neuberger Berman Limited Maturity Bond Portfolio
Neuberger Berman Growth Portfolio
Neuberger Berman Partners Portfolio
Fred Alger Management, Inc. (Alger)
Alger American Small Capitalization Portfolio
Alger American MidCap Growth Portfolio
Alger American Growth Portfolio
Alger American Leveraged AllCap Portfolio
Fidelity Management & Research Company (Fidelity)
Fidelity Investments VIP II Asset Manager Portfolio
Fidelity Investments VIP Growth Portfolio
Fidelity Investments VIP Overseas Portfolio
Fidelity Investments VIP Money Market Portfolio
Fidelity Investments VIP II Index 500 Portfolio
- --------------------------------------------------------------------------------
Corporate Benefits 155
<PAGE>
Security Life Separate Account L1
Notes to Financial Statements (continued)
NOTE A. ORGANIZATION (CONTINUED)
INVESCO Funds Group, Inc. (INVESCO)
INVESCO VIF Total Return Portfolio
INVESCO VIF Industrial Income Portfolio
INVESCO VIF High Yield Portfolio
INVESCO VIF Utilities Portfolio
INVESCO VIF Small Company Growth Portfolio
Van Eck Associates Corporation (Van Eck)
Van Eck Worldwide Hard Assets Portfolio (formerly known as "Van Eck Gold
and Natural Resources Portfolio")
Van Eck Worldwide Real Estate Portfolio
Van Eck Worldwide Emerging Markets Portfolio
Van Eck Worldwide Bond Portfolio
AIM Advisors, Inc. (AIM)
AIM VI - Capital Appreciation Portfolio
AIM VI - Government Securities Portfolio
Effective May 1, 1997, the Divisions of the Separate Account investing in the
Neuberger Berman Government Income Portfolio and the Van Eck Worldwide Balanced
Portfolio stopped accepting new investments. These divisions were discontinued
during 1998.
Effective February 19, 1998, six new divisions became available to the
policyholders for investment in the following funds:
Van Eck Associates Corporation (Van Eck)
Van Eck Worldwide Real Estate Portfolio
Van Eck Worldwide Emerging Markets Portfolio
Van Eck Worldwide Bond Portfolio
AIM Advisors, Inc. (AIM)
AIM VI - Capital Appreciation Portfolio
AIM VI - Government Securities Portfolio
INVESCO Funds Group, Inc. (INVESCO)
INVESCO VIF Small Company Growth Portfolio
- --------------------------------------------------------------------------------
Corporate Benefits 156
<PAGE>
Security Life Separate Account L1
Notes to Financial Statements (continued)
NOTE A. ORGANIZATION (CONTINUED)
The FirstLine and FirstLine policies allow the policyholders to specify the
allocation of their net premium to the various Funds. They can also transfer
their account values among the Funds. The FirstLine and Strategic Advantage
products also provide the policyholders the option to allocate their net
premiums, or to transfer their account values, to a Guaranteed Interest Division
("GID") in the Company's general account. The GID guarantees a rate of interest
to the policyholder, and it is not variable in nature. Therefore, it is not
included in these Separate Account statements.
NOTE B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements of the Separate Account have been prepared
on the basis of generally accepted accounting principles ("GAAP"). The
preparation of financial statements in conformity with GAAP requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
The significant accounting principles followed by the Separate Account and the
methods of applying those principles are presented below or in the footnotes
which follow:
INVESTMENT VALUATION--The investments in shares of the Funds are valued at the
closing net asset value (market value) per share as determined by the Funds on
the day of measurement.
INVESTMENT TRANSACTIONS AND RELATED INVESTMENT INCOME--The investments in shares
of the Funds are accounted for on the date the order to buy or sell is
confirmed. Dividend income and distributions of capital gains are recorded on
the ex-dividend date. Realized gains and losses from sales transactions are
reported using the first-in, first-out ("FIFO") method of accounting for cost.
The difference between cost and current market value of investments owned on the
day of measurement is recorded as unrealized gain or loss on investment.
VALUATION PERIOD DEDUCTIONS--Charges are made directly against the assets of the
Separate Account divisions and are reflected daily in the computation of the
unit values of the divisions.
- --------------------------------------------------------------------------------
Corporate Benefits 157
<PAGE>
Security Life Separate Account L1
Notes to Financial Statements (continued)
NOTE B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
A daily deduction, at an annual rate of .75% of the daily asset value of the
Separate Account divisions, is charged to the Separate Account for mortality and
expense risks assumed by the Company. Total mortality and expense charges for
the years ended December 31, 1998, 1997 and 1996 were $1,740,661; $813,630 and
$241,127, respectively.
POLICYHOLDER RESERVES--Policyholder reserves are recorded in the Separate
Account at the aggregate account values of the policyholders invested in the
Separate Account divisions. To the extent that benefits to be paid to the
policyholders exceed their account values, the Company will contribute
additional funds to the benefit proceeds.
- --------------------------------------------------------------------------------
Corporate Benefits 158
<PAGE>
Security Life Separate Account L1
Notes to Financial Statements (continued)
NOTE C. INVESTMENTS
Fund shares are purchased at net asset value with net premiums (premium
payments, less sales and tax loads charged by the Company) and divisional
transfers from other divisions. Fund shares are redeemed for the payment of
benefits, for surrenders, for transfers to other divisions, and for charges by
the Company for certain cost of insurance and administrative charges. The cost
of insurance and administrative charges for the years ended December 31, 1998,
1997 and 1996 were $14,458,798; $8,284,944 and $2,843,666, respectively.
Dividends made by the Funds are reinvested in the Funds.
The following is a summary of Fund shares owned as of December 31, 1998:
<TABLE>
<CAPTION>
Number Net Value
of Asset of Shares Cost of
FUND Shares Value at Market Shares
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Neuberger Berman Management Inc.:
Limited Maturity Bond 1,127,232.206 $13.82 $ 15,578,349 $ 15,334,595
Growth 343,330.535 $26.29 9,026,160 8,510,696
Government Income -- $11.14 -- --
Partners 1,186,647.771 $18.93 22,463,242 22,570,797
Fred Alger Management, Inc.:
American Small Capitalization 352,589.754 $43.97 15,503,371 14,851,950
American MidCap Growth 319,369.785 $28.87 9,220,207 7,858,579
American Growth 430,357.281 $53.22 22,903,614 18,608,688
American Leveraged AllCap 194,880.482 $34.90 6,801,329 5,293,171
Fidelity Management & Research Co.:
Asset Manager 563,726.801 $18.16 10,237,279 9,501,494
Growth 733,232.497 $44.87 32,900,142 26,845,882
Overseas 1,026,528.069 $20.05 20,581,887 19,913,166
Money Market 18,412,252.400 $1.00 18,412,252 18,412,252
Index 500 609,942.422 $141.25 86,154,369 70,067,500
INVESCO Funds Group, Inc.:
Total Return 488,861.727 $16.58 8,105,328 7,814,990
Industrial Income 583,181.351 $18.61 10,853,005 10,163,306
High Yield 696,358.875 $11.32 7,882,782 8,752,765
Utilities 114,789.679 $17.78 2,040,960 1,727,429
Small Company Growth 64,989.440 $11.52 748,678 674,581
Van Eck Associates Corporation:
Worldwide Balanced -- $12.03 -- --
Worldwide Hard Assets 116,712.440 $9.20 1,073,755 1,517,809
Worldwide Bond 16,759.491 $12.28 205,807 201,853
Worldwide Emerging Markets 64,769.133 $7.12 461,156 414,017
Worldwide Real Estate 7,995.940 $9.54 76,281 76,310
AIM Advisors, Inc.:
Capital Appreciation 47,795.065 $25.20 1,204,436 1,085,211
Government Securities 232,175.030 $11.18 2,595,717 2,560,855
----------------- -----------------
Total $305,030,106 $272,757,896
================= =================
</TABLE>
- --------------------------------------------------------------------------------
Corporate Benefits 159
<PAGE>
Security Life Separate Account L1
Notes to Financial Statements (continued)
NOTE C. INVESTMENTS (CONTINUED)
For the year ended December 31, 1998, the cost of purchases (plus reinvested
dividends) and sales of investments are as follows:
<TABLE>
<CAPTION>
Beginning End
FUND of Year Purchases Sales of Year
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Neuberger Berman Management Inc.:
Limited Maturity Bond $6,490,167 $11,289,258 ($2,444,830) $15,334,595
Growth 4,895,677 7,029,074 (3,414,055) 8,510,696
Government Income 833,365 137,502 (970,867) --
Partners 11,515,832 13,300,529 (2,245,564) 22,570,797
Fred Alger Management, Inc.:
American Small Capitalization 10,791,047 8,512,969 (4,452,066) 14,851,950
American MidCap Growth 4,680,691 5,007,799 (1,829,911) 7,858,579
American Growth 8,426,205 12,330,367 (2,147,884) 18,608,688
American Leveraged AllCap 2,939,669 4,357,148 (2,003,646) 5,293,171
Fidelity Management & Research Co.:
Asset Manager 5,638,123 5,278,809 (1,415,438) 9,501,494
Growth 16,477,099 23,941,147 (13,572,364) 26,845,882
Overseas 12,237,937 23,905,882 (16,230,653) 19,913,166
Money Market 14,300,455 74,696,311 (70,584,514) 18,412,252
Index 500 32,789,297 45,050,855 (7,772,652) 70,067,500
INVESCO Funds Group, Inc.:
Total Return 2,812,500 5,585,718 (583,228) 7,814,990
Industrial Income 5,602,678 5,964,437 (1,403,809) 10,163,306
High Yield 4,793,052 10,924,985 (6,965,272) 8,752,765
Utilities 1,129,569 919,214 (321,354) 1,727,429
Small Company Growth -- 775,726 (101,145) 674,581
Van Eck Associates Corporation:
Worldwide Balanced 364,193 72,504 (436,697) --
Worldwide Hard Assets 959,451 1,175,104 (616,746) 1,517,809
Worldwide Bond -- 222,604 (20,751) 201,853
Worldwide Emerging Markets -- 771,909 (357,892) 414,017
Worldwide Real Estate -- 95,356 (19,046) 76,310
AIM Advisors, Inc.
Capital Appreciation -- 1,174,137 (88,926) 1,085,211
Government Securities -- 2,744,143 (183,288) 2,560,855
--------------- ------------ -------------- ------------
Total $147,677,007 $265,263,487 ($140,182,598) $272,757,896
=============== ============ ============== ============
</TABLE>
Aggregate proceeds from sales of investments for the year ended December 31,
1998 were $148,718,872.
- --------------------------------------------------------------------------------
Corporate Benefits 160
<PAGE>
Security Life Separate Account L1
Notes to Financial Statements (continued)
NOTE D. OTHER POLICY DEDUCTIONS
The FirstLine and Strategic Advantage products provide for certain deductions
for sales and tax loads from premium payments received from the policyholders
and for surrender charges and taxes from amounts paid to policyholders. Such
deductions are taken before the purchase of divisional units or after the
redemption of divisional units of the Separate Account. Such deductions are not
included in the Separate Account financial statements.
NOTE E. POLICY LOANS
The FirstLine and Strategic Advantage policies allow the policyholders to borrow
against their policies by using them as collateral for a loan. At the time of
borrowing against the policies, an amount equal to the loan amount is
transferred from the Separate Account divisions to a Loan Division in the
Company's General Account to secure the loan. As payments are made on the policy
loan, amounts are transferred back from the Loan Division to the Separate
Account divisions. Interest is credited to the balance in the Loan Division at a
fixed rate. The Loan Division is not variable in nature and is not included in
these Separate Account statements.
NOTE F. FEDERAL INCOME TAXES
The Separate Account is not taxed separately because the operations of the
Separate Account are part of the total operations of the Company. The Company is
taxed as a life insurance company under the Internal Revenue Code. The Separate
Account is not taxed as a "Regulated Investment Company" under subchapter "M" of
the Internal Revenue Code.
- --------------------------------------------------------------------------------
Corporate Benefits 161
<PAGE>
Security Life Separate Account L1
Notes to Financial Statements (continued)
NOTE G. SUMMARY OF CHANGES IN UNITS
The following schedule summarizes the changes in divisional units for the year
ended December 31, 1998:
<TABLE>
<CAPTION>
(Decrease)
for
Outstanding Increase Withdrawals Outstanding
At Beginning for Payments and Other At End
Division of Year Received Deductions of Year
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Neuberger Berman Management Inc.:
Limited Maturity Bond 552,985.394 801,233.327 (108,659.600) 1,245,559.121
Growth 316,146.084 250,854.619 (119,514.327) 447,486.376
Government Income 75,811.559 58.537 (75,870.096) --
Partners 626,285.721 455,096.290 (95,083.993) 986,298.018
Fred Alger Management, Inc.:
American Small Capitalization 648,733.740 333,770.247 (143,811.569) 838,692.418
American MidCap Growth 288,809.482 167,037.228 (53,314.238) 402,532.472
American Growth 569,990.309 442,313.190 (88,607.433) 923,696.066
American Leveraged AllCap 148,542.639 102,168.282 (29,068.475) 221,642.446
Fidelity Management & Research Co.:
Asset Manager 410,906.106 270,972.780 (81,623.673) 600,255.213
Growth 983,842.388 614,542.294 (304,904.344) 1,293,480.338
Overseas 950,328.899 861,220.218 (381,889.210) 1,429,659.907
Money Market 1,303,059.881 5,059,561.984 (4,836,217.466) 1,526,404.399
Index 500 1,863,056.104 1,617,935.444 (265,001.029) 3,215,990.519
INVESCO Funds Group, Inc.:
Total Return 184,042.238 307,178.543 (40,663.565) 450,557.216
Industrial Income 297,553.033 216,644.366 (40,580.647) 473,616.752
High Yield 333,501.857 283,205.205 (129,848.414) 486,858.648
Utilities 78,118.685 41,701.114 (9,440.183) 110,379.616
Small Company Growth -- 71,535.065 (4,028.624) 67,506.441
Van Eck Associates Corporation:
Worldwide Balanced 32,139.282 190.627 (32,329.909) --
Worldwide Hard Assets 77,046.773 68,491.375 (13,024.324) 132,513.824
Worldwide Bond -- 18,882.425 (226.108) 18,656.317
Worldwide Emerging Markets -- 105,064.405 (37,710.110) 67,354.295
Worldwide Real Estate -- 9,848.072 (1,082.840) 8,765.232
AIM Advisors, Inc.:
Capital Appreciation -- 108,895.839 (3,437.972) 105,457.867
Government Securities -- 261,432.015 (15,281.953) 246,150.062
</TABLE>
- --------------------------------------------------------------------------------
Corporate Benefits 162
<PAGE>
Security Life Separate Account L1
Notes to Financial Statements (continued)
NOTE G. SUMMARY OF CHANGES IN UNITS (CONTINUED)
The following schedule summarizes the changes in divisional units for the year
ended December 31, 1997:
<TABLE>
<CAPTION>
(Decrease)
for
Outstanding Increase Withdrawals Outstanding
At Beginning for Payments and Other At End
Division of Year Received Deductions of Year
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Neuberger Berman Management Inc.:
Limited Maturity Bond 218,725.891 334,572.082 (312.579) 552,985.394
Growth 133,567.983 187,433.957 (4,855.856) 316,146.084
Government Income 142,773.403 30,012.660 (96,974.504) 75,811.559
Partners 275,892.457 354,159.052 (3,765.788) 626,285.721
Fred Alger Management, Inc.:
American Small Capitalization 297,073.322 368,659.345 (16,998.927) 648,733.740
American MidCap Growth 150,480.473 143,410.236 (5,081.227) 288,809.482
American Growth 282,175.287 292,019.948 (4,204.926) 569,990.309
American Leveraged AllCap 53,044.470 96,743.489 (1,245.320) 148,542.639
Fidelity Management & Research Co.:
Asset Manager 123,908.168 294,115.342 (7,117.404) 410,906.106
Growth 470,285.667 522,440.765 (8,884.044) 983,842.388
Overseas 367,948.109 589,863.772 (7,482.982) 950,328.899
Money Market 753,707.969 6,017,484.702 (5,468,132.790) 1,303,059.881
Index 500 640,890.650 1,227,420.261 (5,254.807) 1,863,056.104
INVESCO Funds Group, Inc.:
Total Return 64,490.483 121,436.060 (1,884.305) 184,042.238
Industrial Income 87,035.356 212,619.908 (2,102.231) 297,553.033
High Yield 108,999.107 225,144.290 (641.540) 333,501.857
Utilities 18,008.490 63,007.328 (2,897.133) 78,118.685
Van Eck Associates Corporation:
Worldwide Balanced 29,808.787 5,838.562 (3,508.067) 32,139.282
Worldwide Hard Assets 21,966.093 55,323.208 (242.528) 77,046.773
</TABLE>
- --------------------------------------------------------------------------------
Corporate Benefits 163
<PAGE>
Security Life Separate Account L1
Notes to Financial Statements (continued)
NOTE G. SUMMARY OF CHANGES IN UNITS (CONTINUED)
The following schedule summarizes the changes in divisional units for the year
ended December 31, 1996:
<TABLE>
<CAPTION>
(Decrease)
for
Outstanding Increase Withdrawals Outstanding
at Beginning or Payments and Other at End
Division of Year Received Deductions of Year
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Neuberger Berman Management Inc.:
Limited Maturity Bond 162,009.578 57,300.933 (584.620) 218,725.891
Growth 60,162.107 74,132.806 (726.930) 133,567.983
Government Income 77,187.706 65,930.987 (345.290) 142,773.403
Partners 73,535.288 203,456.199 (1,099.030) 275,892.457
Fred Alger Management, Inc.:
American Small Capitalization 80,027.266 218,770.486 (1,724.430) 297,073.322
American MidCap Growth 19,692.860 131,814.883 (1,027.270) 150,480.473
American Growth 69,805.233 214,057.614 (1,687.560) 282,175.287
American Leveraged AllCap 2,494.731 51,210.999 (661.260) 53,044.470
Fidelity Management & Research Co.:
Asset Manager 11,627.088 112,576.840 (295.760) 123,908.168
Growth 102,248.988 369,855.299 (1,818.620) 470,285.667
Overseas 93,906.733 275,584.696 (1,543.320) 367,948.109
Money Market 178,653.159 3,174,656.740 (2,599,601.930) 753,707.969
Index 500 91,903.027 551,031.963 (2,044.340) 640,890.650
INVESCO Funds Group, Inc.:
Total Return 12,602.664 52,659.359 (771.540) 64,490.483
Industrial Income 20,026.102 67,339.104 (329.850) 87,035.356
High Yield 45,708.358 63,646.889 (356.140) 108,999.107
Utilities 1,879.859 16,197.511 (68.880) 18,008.490
Van Eck Associates Corporation:
Worldwide Balanced 7,739.274 22,412.363 (342.850) 29,808.787
Worldwide Hard Assets 1,765.913 20,257.020 (56.840) 21,966.093
</TABLE>
- --------------------------------------------------------------------------------
Corporate Benefits 164
<PAGE>
Security Life Separate Account L1
Notes to Financial Statements (continued)
NOTE H. NET ASSETS
Net assets at December 31, 1998 consisted of the following:
<TABLE>
<CAPTION>
Accumulated Net
Accumulated Net Realized Unrealized
Investment Gains Gains
Principal Income (Losses) On (Losses) On
Division Transactions (Loss) Investments Investments Net Assets
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Neuberger Berman Management Inc.:
Limited Maturity Bond $ 14,798,256 $ 554,555 $ (18,215) $ 243,753 $ 15,578,349
Growth 7,028,181 1,750,191 (267,675) 515,463 9,026,160
Government Income (197,709) 219,245 (21,536) - -
Partners 19,164,868 2,232,497 1,173,430 (107,553) 22,463,242
Fred Alger Management, Inc.:
American Small Capitalization 12,782,408 1,740,285 329,258 651,420 15,503,371
American MidCap Growth 6,729,922 570,025 558,634 1,361,626 9,220,207
American Growth 15,328,177 2,102,491 1,178,019 4,294,927 22,903,614
American Leveraged AllCap 4,597,430 102,339 593,403 1,508,157 6,801,329
Fidelity Management & Research Co.:
Asset Manager 8,511,070 928,642 61,784 735,783 10,237,279
Growth 21,880,758 2,745,144 2,220,029 6,054,211 32,900,142
Overseas 17,959,130 1,286,196 667,842 668,719 20,581,887
Money Market 16,762,206 1,650,046 - - 18,412,252
Index 500 63,645,284 1,521,424 4,900,792 16,086,869 86,154,369
INVESCO Funds Group, Inc.:
Total Return 7,241,724 359,909 213,358 290,337 8,105,328
Industrial Income 8,730,383 941,544 491,379 689,699 10,853,005
High Yield 7,183,287 1,366,993 202,483 (869,981) 7,882,782
Utilities 1,554,382 45,485 127,560 313,533 2,040,960
Small Company Growth 682,064 (586) (6,898) 74,098 748,678
Van Eck Associates Corporation:
Worldwide Balanced (94,857) 49,411 45,446 - -
Worldwide Hard Assets 1,509,491 144,822 (136,502) (444,056) 1,073,755
Worldwide Bond 201,935 (212) 130 3,954 205,807
Worldwide Emerging Markets 517,189 (1,736) (101,436) 47,139 461,156
Worldwide Real Estate 78,370 (225) (1,836) (28) 76,281
AIM Advisors, Inc.:
Capital Appreciation 1,064,475 24,052 (3,314) 119,223 1,204,436
Government Securities 2,493,145 59,796 7,914 34,862 2,595,717
------------ ----------- ----------- ----------- ------------
Total $240,151,569 $20,392,333 $12,214,049 $32,272,155 $305,030,106
============ =========== =========== =========== ============
</TABLE>
- --------------------------------------------------------------------------------
Corporate Benefits 165
<PAGE>
Security Life Separate Account L1
Notes to Financial Statements (continued)
NOTE I. YEAR 2000 (UNAUDITED)
The Company has initiated a program to prepare the Company's computer systems
and applications for the year 2000. This program includes all systems utilized
by the Company as well as the systems of other companies that interface with the
Company. The Company has completed an assessment and is in the process of
modifying portions of its software so that its computer systems will function
properly with respect to dates in the year 2000 and thereafter. Accordingly, the
Company does not expect the amounts required for this project to have a material
effect on its financial position.
The project is estimated to be completed no later than June 1999, which is prior
to any anticipated impact on its operating systems. The Company believes that
with modifications to existing software, and conversions to new software, the
Year 2000 will not pose significant operational problems for its computer
software systems. However, if such modifications and conversions are not made,
or are not completed in a timely manner, it could have a material impact on the
operations of the Company.
The Company has initiated formal communications and interface testing plans with
all of its suppliers and customers to determine the extent to which its
interface systems are vulnerable to those third parties' failure to have their
systems Year 2000 compatible and will act accordingly to prevent operational
disruptions.
- --------------------------------------------------------------------------------
Corporate Benefits 166
<PAGE>
Financial Statements - Unaudited
Security Life Separate Account L1
of Security Life of Denver
Insurance Company
Nine months ended September 30, 1999
- --------------------------------------------------------------------------------
Corporate Benefits 167
<PAGE>
Security Life Separate Account L1
Financial Statements - Unaudited
Nine months ended September 30, 1999
CONTENTS
Financial Statements - Unaudited
Statement of Net Assets .....................................................169
Statement of Operations .....................................................176
Statement of Changes in Net Assets ..........................................183
Notes to Financial Statements ...............................................190
- --------------------------------------------------------------------------------
Corporate Benefits 168
<PAGE>
Security Life Separate Account L1
Statement of Net Assets
(Unaudited)
September 30, 1999
<TABLE>
<CAPTION>
TOTAL
ALL TOTAL TOTAL TOTAL TOTAL TOTAL TOTAL
DIVISIONS NB ALGER FIDELITY INVESCO VAN ECK AIM
------------- ------------ ------------ ------------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investments in mutual funds
at market value (Note C) $408,389,528 $47,839,833 $76,536,852 $234,421,699 $37,761,399 $3,989,478 $7,840,267
------------- ------------ ------------ ------------- ------------ ----------- -----------
Net assets $408,389,528 $47,839,833 $76,536,852 $234,421,699 $37,761,399 $3,989,478 $7,840,267
============= ============ ============ ============= ============ =========== ===========
POLICYHOLDER RESERVES
Reserves attributable to the
policyholders (Note B) $408,389,528 $47,839,833 $76,536,852 $234,421,699 $37,761,399 $3,989,478 $7,840,267
------------- ------------ ------------ ------------- ------------ ----------- -----------
TOTAL POLICYHOLDER RESERVES $408,389,528 $47,839,833 $76,536,852 $234,421,699 $37,761,399 $3,989,478 $7,840,267
============= ============ ============ ============= ============ =========== ===========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Corporate Benefits 169
<PAGE>
Security Life Separate Account L1
Statement of Net Assets (continued)
(Unaudited)
September 30, 1999
<TABLE>
<CAPTION>
NB
-----------------------------------------------------------
TOTAL LIMITED
NB MATURITY BOND GROWTH PARTNERS
-------------- -------------- ------------ --------------
<S> <C> <C> <C> <C>
ASSETS
Investments in mutual funds at
market value (Note C) $47,839,833 $13,068,057 $9,619,934 $25,151,842
------------- ------------- ------------ --------------
Net assets $47,839,833 $13,068,057 $9,619,934 $25,151,842
============= ============== ============ ==============
POLICYHOLDER RESERVES
Reserves attributable to the
policyholders (Note B) $47,839,833 $13,068,057 $9,619,934 $25,151,842
------------- -------------- ------------ --------------
TOTAL POLICYHOLDER RESERVES $47,839,833 $13,068,057 $9,619,934 $25,151,842
============= ============== ============ ==============
Number of division units
outstanding
(Note G) 1,039,622.674 473,888.373 1,125,362.057
============== ============ ==============
Value per divisional unit $12.57 $20.30 $22.35
============== ============ ==============
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Corporate Benefits 170
<PAGE>
Security Life Separate Account L1
Statement of Net Assets (continued)
(Unaudited)
September 30, 1999
<TABLE>
<CAPTION>
ALGER
--------------------------------------------------------------------------
AMERICAN AMERICAN AMERICAN
TOTAL SMALL MIDCAP AMERICAN LEVERAGED
ALGER CAPITALIZATION GROWTH GROWTH ALLCAP
------------- -------------- ------------ -------------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments in mutual funds at
market value (Note C) $76,536,852 $19,498,480 $12,472,535 $31,328,893 $13,236,944
------------- -------------- ------------ ------------- -------------
Net assets $76,536,852 $19,498,480 $12,472,535 $31,328,893 $13,236,944
============= ============== ============ ============== =============
POLICYHOLDER RESERVES
Reserves attributable to the
policyholders (Note B) $76,536,852 $19,498,480 $12,472,535 $31,328,893 $13,236,944
------------- -------------- ------------ -------------- -------------
TOTAL POLICYHOLDER RESERVES $76,536,852 $19,498,480 $12,472,535 $31,328,893 $13,236,944
============= ============== ============ ============== =============
Number of division units
outstanding
(Note G) 969,591.252 521,645.131 1,155,621.285 341,422.339
============== ============ ============== =============
Value per divisional unit $20.11 $23.91 $27.11 $38.77
============== ============ ============== =============
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Corporate Benefits 171
<PAGE>
Security Life Separate Account L1
Statement of Net Assets (continued)
(Unaudited)
September 30, 1999
<TABLE>
<CAPTION>
FIDELITY
--------------------------------------------------------------------------------------
TOTAL ASSET MONEY
FIDELITY MANAGER GROWTH OVERSEAS MARKET INDEX 500
-------------- ------------ ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investments in mutual funds at
market value (Note C) $234,421,699 $10,482,357 $42,362,233 $26,565,028 $34,894,073 $120,118,008
-------------- ------------ ------------- ------------- ------------- -------------
Net assets $234,421,699 $10,482,357 $42,362,233 $26,565,028 $34,894,073 $120,118,008
============== ============ ============= ============= ============= =============
POLICYHOLDER RESERVES
Reserves attributable to the
policyholders (Note B) $234,421,699 $10,482,357 $42,362,233 $26,565,028 $34,894,073 $120,118,008
-------------- ------------ ------------- ------------- ------------- -------------
TOTAL POLICYHOLDER RESERVES $234,421,699 $10,482,357 $42,362,233 $26,565,028 $34,894,073 $120,118,008
============== ============ ============= ============== ============= =============
Number of division units
outstanding
(Note G) 605,216.916 1,505,409.839 1,623,779.218 2,804,989.794 4,294,530.144
============ ============= ============= ============= =============
Value per divisional unit $17.32 $28.14 $16.36 $12.44 $27.97
============ ============= ============= ============= =============
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Corporate Benefits 172
<PAGE>
Security Life Separate Account L1
Statement of Net Assets (continued)
(Unaudited)
September 30, 1999
<TABLE>
<CAPTION>
INVESCO
-----------------------------------------------------------------------------------------
TOTAL TOTAL INDUSTRIAL SMALL COMPANY
INVESCO RETURN INCOME HIGH YIELD UTILITIES GROWTH
-------------- ------------- ------------ ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investments in mutual funds at
market value (Note C) $37,761,399 $10,081,573 $13,672,547 $8,460,163 $3,283,833 $2,263,283
-------------- ------------- ------------ ------------- ------------- --------------
Net assets $37,761,399 $10,081,573 $13,672,547 $8,460,163 $3,283,833 $2,263,283
============== ============= ============ ============= ============= ==============
POLICYHOLDER RESERVES
Reserves attributable to the
policyholders (Note B) $37,761,399 $10,081,573 $13,672,547 $8,460,163 $3,283,833 $2,263,283
-------------- ------------- ------------ ------------- ------------- --------------
TOTAL POLICYHOLDER RESERVES $37,761,399 $10,081,573 $13,672,547 $8,460,163 $3,283,833 $2,263,283
============== ============= ============ ============= ============= ==============
Number of division units
outstanding
(Note G) 587,846.822 564,281.758 498,536.417 166,522.972 158,826.877
============= ============ ============= ============= ==============
Value per divisional unit $17.15 $24.23 $16.97 $19.72 $14.25
============= ============ ============= ============= ==============
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Corporate Benefits 173
<PAGE>
Security Life Separate Account L1
Statement of Net Assets (continued)
(Unaudited)
September 30, 1999
<TABLE>
<CAPTION>
VAN ECK
-----------------------------------------------------------------------
WORLDWIDE WORLDWIDE WORLDWIDE
TOTAL HARD WORLDWIDE EMERGING REAL
VAN ECK ASSETS BOND MARKETS ESTATE
---------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments in mutual funds at
market value (Note C) $3,989,478 $1,953,938 $433,186 $1,345,900 $256,454
---------- ------------- ------------- ------------- --------------
Net assets $3,989,478 $1,953,938 $433,186 $1,345,900 $256,454
========== ============= ============= ============= ==============
POLICYHOLDER RESERVES
Reserves attributable to the
policyholders (Note B) $3,989,478 $1,953,938 $433,186 $1,345,900 $256,454
---------- ------------- ------------- ------------- --------------
TOTAL POLICYHOLDER RESERVES $3,989,478 $1,953,938 $433,186 $1,345,900 $256,454
========== ============= ============= ============= ==============
Number of division units
outstanding
(Note G) 206,329.250 41,934.753 154,879.171 29,109.421
============= ============= ============= ==============
Value per divisional unit $9.47 $10.33 $8.69 $8.81
============= ============= ============= ==============
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Corporate Benefits 174
<PAGE>
Security Life Separate Account L1
Statement of Net Assets (continued)
(Unaudited)
September 30, 1999
AIM
---------------------------------------
TOTAL CAPITAL GOVERNMENT
AIM APPRECIATION SECURITIES
----------- ---------------- ----------
ASSETS
Investments in mutual funds at
market value (Note C) $7,840,267 $3,053,235 $4,787,032
------------ ------------- ------------
Net assets $7,840,267 $3,053,235 $4,787,032
============ ============= ============
POLICYHOLDER RESERVES
Reserves attributable to the
policyholders (Note B) $7,840,267 $3,053,235 $4,787,032
------------ ------------- ------------
TOTAL POLICYHOLDER RESERVES $7,840,267 $3,053,235 $4,787,032
============ ============= ============
Number of division units outstanding
(Note G) 252,333.471 462,515.169
============= ============
Value per divisional unit $12.10 $10.35
============= ============
See accompanying notes.
- --------------------------------------------------------------------------------
Corporate Benefits 175
<PAGE>
Security Life Separate Account L1
Statement of Operations
(Unaudited)
Nine months ended September 30, 1999
<TABLE>
<CAPTION>
TOTAL
ALL TOTAL TOTAL TOTAL TOTAL TOTAL TOTAL
DIVISIONS NB ALGER FIDELITY INVESCO VAN ECK AIM
------------ ------------ ----------- ----------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends from mutual funds $16,941,715 $2,123,919 $7,325,481 $7,461,489 - $30,826 -
Less valuation period deductions
(Note B) 2,046,339 273,318 384,719 1,140,818 $196,400 18,383 $32,701
------------ ------------ ----------- ----------- ----------- -------- -----------
Net investment income (loss) 14,895,376 1,850,601 6,940,762 6,320,671 (196,400) 12,443 (32,701)
------------ ------------ ----------- ----------- ----------- -------- -----------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gains (losses) on
investments 13,909,102 (135,889) 3,847,712 9,196,782 916,656 60,896 22,945
Net unrealized gains (losses) on
investments (10,871,813) (2,235,009) (4,536,943) (4,797,945) 321,114 299,818 77,152
------------ ------------ ----------- ----------- ----------- -------- -----------
Net realized and unrealized
gains (losses) on investments 3,037,289 (2,370,898) (689,231) 4,398,837 1,237,770 360,714 100,097
------------ ------------ ----------- ----------- ----------- -------- -----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS $17,932,665 ($520,297) $6,251,531 $10,719,508 $1,041,370 $373,157 $67,396
============ ============ =========== =========== =========== ======== ===========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Corporate Benefits 176
<PAGE>
Security Life Separate Account L1
Statement of Operations (continued)
(Unaudited)
Nine months ended September 30, 1999
<TABLE>
<CAPTION>
NB
-----------------------------------------------------------
TOTAL LIMITED
NB MATURITY BOND GROWTH PARTNERS
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends from mutual funds $2,123,919 $911,596 $453,085 $759,238
Less valuation period deductions
(Note B) 273,318 83,757 49,751 139,810
------------- ------------- ------------- --------------
Net investment income (loss) 1,850,601 827,839 403,334 619,428
------------- ------------- ------------- --------------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gains (losses) on
investments (135,889) (253,335) (271,898) 389,344
Net unrealized gains (losses) on
investments (2,235,009) (517,057) (40,207) (1,677,745)
------------- ------------- ------------- --------------
Net realized and unrealized
gains (losses) on investments (2,370,898) (770,392) (312,105) (1,288,401)
------------- ------------- ------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS ($520,297) $57,447 $91,229 ($668,973)
============= ============= ============= ==============
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Corporate Benefits 177
<PAGE>
Security Life Separate Account L1
Statement of Operations (continued)
(Unaudited)
Nine months ended September 30, 1999
<TABLE>
<CAPTION>
ALGER
--------------------------------------------------------------------------
AMERICAN AMERICAN AMERICAN
TOTAL SMALL MIDCAP AMERICAN LEVERAGED
ALGER CAPITALIZATION GROWTH GROWTH ALLCAP
------------- -------------- ------------ -------------- -------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends from mutual funds $7,325,481 $2,200,048 $1,636,538 $2,764,203 $724,692
Less valuation period deductions
(Note B) 384,719 97,314 61,293 165,157 60,955
------------- -------------- ------------ -------------- -------------
Net investment income (loss) 6,940,762 2,102,734 1,575,245 2,599,046 663,737
------------- -------------- ------------ -------------- -------------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gains (losses) on
investments 3,847,712 (254,740) 155,044 1,688,880 2,258,528
Net unrealized gains (losses) on
investments (4,536,943) (358,981) (1,323,462) (2,152,621) (701,879)
------------- -------------- ------------ -------------- -------------
Net realized and unrealized
gains (losses) on investments (689,231) (613,721) (1,168,418) (463,741) 1,556,649
------------- -------------- ------------ -------------- -------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS $6,251,531 $1,489,013 $406,827 $2,135,305 $2,220,386
============= ============== ============ ============== =============
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Corporate Benefits 178
<PAGE>
Security Life Separate Account L1
Statement of Operations (continued)
(Unaudited)
Nine months ended September 30, 1999
<TABLE>
<CAPTION>
FIDELITY
-------------------------------------------------------------------------------
TOTAL ASSET MONEY
FIDELITY MANAGER GROWTH OVERSEAS MARKET INDEX 500
----------- ----------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends from mutual funds $7,461,489 $798,528 $3,508,501 $820,014 $830,711 $1,503,735
Less valuation period deductions
(Note B) 1,140,818 61,269 217,300 131,693 126,634 603,922
----------- ----------- ------------ ----------- ----------- ------------
Net investment income (loss) 6,320,671 737,259 3,291,201 688,321 704,077 899,813
----------- ----------- ------------ ----------- ----------- ------------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gains (losses) on
investments 9,196,782 114,141 6,110,588 276,971 - 2,695,082
Net unrealized gains (losses) on
investments (4,797,945) (685,209) (5,671,895) 2,098,113 - (538,954)
----------- ----------- ------------ ----------- ----------- ------------
Net realized and unrealized
gains (losses) on investments 4,398,837 (571,068) 438,693 2,375,084 - 2,156,128
----------- ----------- ------------ ----------- ----------- ------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS $10,719,508 $166,191 $3,729,894 $3,063,405 $704,077 $3,055,941
=========== =========== ============ =========== =========== ============
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Corporate Benefits 179
<PAGE>
Security Life Separate Account L1
Statement of Operations (continued)
(Unaudited)
Nine months ended September 30, 1999
<TABLE>
<CAPTION>
INVESCO
-----------------------------------------------------------------------------------
SMALL
TOTAL TOTAL INDUSTRIAL COMPANY
INVESCO RETURN INCOME HIGH YIELD UTILITIES GROWTH
------------- ------------- ------------- ------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends from mutual funds - - - - - -
Less valuation period deductions
(Note B) $196,400 $52,259 $69,936 $48,767 $16,883 $8,555
------------- ------------- ------------- ------------- --------- ------------
Net investment income (loss) (196,400) (52,259) (69,936) (48,767) (16,883) (8,555)
------------- ------------- ------------- ------------- --------- ------------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gains (losses) on
investments 916,656 282,794 423,686 (191,447) 298,134 103,489
Net unrealized gains (losses) on
investments 321,114 (720,172) 195,085 636,457 (165,901) 375,645
------------- ------------- ------------- ------------- --------- ------------
Net realized and unrealized
gains (losses) on investments 1,237,770 (437,378) 618,771 445,010 132,233 479,134
------------- ------------- ------------- ------------- --------- ------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS $1,041,370 ($489,637) $548,835 $396,243 $115,350 $470,579
============= ============= ============= ============= ========= ============
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Corporate Benefits 180
<PAGE>
Security Life Separate Account L1
Statement of Operations (continued)
(Unaudited)
Nine months ended September 30, 1999
<TABLE>
<CAPTION>
VAN ECK
-----------------------------------------------------------------
WORLDWIDE WORLDWIDE WORLDWIDE
TOTAL HARD WORLDWIDE EMERGING REAL
VAN ECK ASSETS BOND MARKETS ESTATE
----------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends from mutual funds $30,826 $16,585 $12,446 - $1,795
Less valuation period deductions
(Note B) 18,383 8,697 1,849 $6,909 928
----------- ----------- ------------ ----------- ------------
Net investment income (loss) 12,443 7,888 10,597 (6,909) 867
----------- ----------- ------------ ----------- ------------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gains (losses) on
investments 60,896 (325,719) (6,324) 391,099 1,840
Net unrealized gains (losses) on
investments 299,818 531,534 (21,361) (205,448) (4,907)
----------- ----------- ------------ ----------- ------------
Net realized and unrealized
gains (losses) on investments 360,714 205,815 (27,685) 185,651 (3,067)
----------- ----------- ------------ ----------- ------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS $373,157 $213,703 ($17,088) $178,742 ($2,200)
=========== =========== ============ =========== ============
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Corporate Benefits 181
<PAGE>
Security Life Separate Account L1
Statement of Operations (continued)
(Unaudited)
Nine months ended September 30, 1999
AIM
---------------------------------------------
TOTAL CAPITAL GOVERNMENT
AIM APPRECIATION SECURITIES
-------------- -------------- --------------
INVESTMENT INCOME
Dividends from mutual funds - - -
Less valuation period deductions
(Note B) $32,701 $11,381 $21,320
-------------- -------------- --------------
Net investment income (loss) (32,701) (11,381) (21,320)
-------------- -------------- --------------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gains (losses) on
investments 22,945 29,983 (7,038)
Net unrealized gains (losses) on
investments 77,152 99,305 (22,153)
-------------- -------------- --------------
Net realized and unrealized
gains (losses) on investments 100,097 129,288 (29,191)
-------------- -------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS $67,396 $117,907 ($50,511)
============== ============== ==============
See accompanying notes.
- --------------------------------------------------------------------------------
Corporate Benefits 182
<PAGE>
Security Life Separate Account L1
Statement of Changes in Net Assets
(Unaudited)
Nine months ended September 30, 1999
<TABLE>
<CAPTION>
TOTAL
ALL TOTAL TOTAL TOTAL TOTAL TOTAL TOTAL
DIVISIONS NB ALGER FIDELITY INVESCO VAN ECK AIM
------------ ------------ ----------- ------------ ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS
OPERATIONS
Net investment income (loss) $14,895,376 $1,850,601 $6,940,762 $6,320,671 ($196,400) $12,443 ($32,701)
Net realized gains (losses) on
investments 13,909,102 (135,889) 3,847,712 9,196,782 916,656 60,896 22,945
Net unrealized gains (losses) on
investments (10,871,813) (2,235,009) (4,536,943) (4,797,945) 321,114 299,818 77,152
------------ ------------ ----------- ------------ ------------ ---------- ------------
Increase (decrease) in net
assets from
operations 17,932,665 (520,297) 6,251,531 10,719,508 1,041,370 373,157 67,396
------------ ------------ ----------- ------------ ------------ ---------- ------------
CHANGES FROM PRINCIPAL
TRANSACTIONS
Net premiums 110,942,823 6,925,705 12,949,887 77,880,480 9,878,594 1,039,893 2,268,264
Cost of insurance and
administrative charges (14,797,978) (1,647,897) (2,733,031) (8,219,106) (1,820,827) (122,396) (254,721)
Benefit payments (519,243) - - (519,243) - - -
Surrenders (12,100,319) (1,404,466) (2,698,139) (5,903,232) (1,465,154) (28,634) (600,694)
Net transfers among divisions
(including the loan division
and guaranteed interest
division in the general
account) 1,848,227 (2,584,204) 8,363,932 (7,896,857) 519,983 891,599 2,553,774
Other 53,247 3,241 (25,849) 74,220 (23,320) 18,860 6,095
------------ ------------ ----------- ------------ ------------ ---------- ------------
Increase (decrease) from
principal transactions 85,426,757 1,292,379 15,856,800 55,416,262 7,089,276 1,799,322 3,972,718
------------ ------------ ----------- ------------ ------------ ---------- ------------
Total increase (decrease) in 103,359,422 772,082 22,108,331 66,135,770 8,130,646 2,172,479 4,040,114
net assets
Net assets at beginning of 305,030,106 47,067,751 54,428,521 168,285,929 29,630,753 1,816,999 3,800,153
period
------------ ------------ ----------- ------------ ------------ ---------- ------------
Net assets at end of period $408,389,528 $47,839,833 $76,536,852 $234,421,699 $37,761,399 $3,989,478 $7,840,267
============ ============ =========== ============ ============ ========== ============
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Corporate Benefits 183
<PAGE>
Security Life Separate Account L1
Statement of Changes in Net Assets (continued)
(Unaudited)
Nine months ended September 30, 1999
<TABLE>
<CAPTION>
NB
-----------------------------------------------------------
TOTAL LIMITED
NB MATURITY BOND GROWTH PARTNERS
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net investment income (loss) $1,850,601 $827,839 $403,334 $619,428
Net realized gains (losses) on
investments (135,889) (253,335) (271,898) 389,344
Net unrealized gains (losses) on
investments (2,235,009) (517,057) (40,207) (1,677,745)
------------- ------------- ------------- --------------
Increase (decrease) in net
assets from
operations (520,297) 57,447 91,229 (668,973)
------------- ------------- ------------- --------------
CHANGES FROM PRINCIPAL
TRANSACTIONS
Net premiums 6,925,705 1,882,305 1,428,513 3,614,887
Cost of insurance and
administrative charges (1,647,897) (426,622) (276,240) (945,035)
Benefit payments - - - -
Surrenders (1,404,466) (1,000,100) (125,647) (278,719)
Net transfers among divisions
(including the loan division
and guaranteed interest
division in the general
account) (2,584,204) (3,045,474) (516,834) 978,104
Other 3,241 22,152 (7,247) (11,664)
------------- ------------- ------------- --------------
Increase (decrease) from
principal transactions 1,292,379 (2,567,739) 502,545 3,357,573
------------- ------------- ------------- --------------
Total increase (decrease) in 772,082 (2,510,292) 593,774 2,688,600
net assets
Net assets at beginning of
period 47,067,751 15,578,349 9,026,160 22,463,242
------------- ------------- ------------- --------------
Net assets at end of period $47,839,833 $13,068,057 $9,619,934 $25,151,842
============= ============= ============= ==============
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Corporate Benefits 184
<PAGE>
Security Life Separate Account L1
Statement of Changes in Net Assets (continued)
(Unaudited)
Nine months ended September 30, 1999
<TABLE>
<CAPTION>
ALGER
--------------------------------------------------------------------------
AMERICAN AMERICAN AMERICAN
TOTAL SMALL MIDCAP AMERICAN LEVERAGED
ALGER CAPITALIZATION GROWTH GROWTH ALLCAP
------------- -------------- ------------ ------------- --------------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS
OPERATIONS
Net investment income (loss) $6,940,762 $2,102,734 $1,575,245 $2,599,046 $663,737
Net realized gains (losses) on
investments 3,847,712 (254,740) 155,044 1,688,880 2,258,528
Net unrealized gains (losses) on
investments (4,536,943) (358,981) (1,323,462) (2,152,621) (701,879)
------------- -------------- ------------ ------------- --------------
Increase (decrease) in net
assets from
operations 6,251,531 1,489,013 406,827 2,135,305 2,220,386
------------- -------------- ------------ ------------- --------------
CHANGES FROM PRINCIPAL
TRANSACTIONS
Net premiums 12,949,887 3,095,456 2,456,242 5,358,862 2,039,327
Cost of insurance and
administrative charges (2,733,031) (686,623) (472,644) (1,156,906) (416,858)
Benefit payments - - - - -
Surrenders (2,698,139) (916,830) (246,128) (985,915) (549,266)
Net transfers among divisions
(including the loan division
and guaranteed interest
division in the general
account) 8,363,932 1,057,181 1,130,939 3,097,863 3,077,949
Other (25,849) (43,088) (22,908) (23,930) 64,077
------------- -------------- ------------ ------------- --------------
Increase (decrease) from
principal transactions 15,856,800 2,506,096 2,845,501 6,289,974 4,215,229
------------- -------------- ------------ ------------- --------------
Total increase (decrease) in 22,108,331 3,995,109 3,252,328 8,425,279 6,435,615
net assets
Net assets at beginning of
period 54,428,521 15,503,371 9,220,207 22,903,614 6,801,329
------------- -------------- ------------ ------------- --------------
Net assets at end of period $76,536,852 $19,498,480 $12,472,535 $31,328,893 $13,236,944
============= ============== ============ ============= ==============
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Corporate Benefits 185
<PAGE>
Security Life Separate Account L1
Statement of Changes in Net Assets (continued)
(Unaudited)
Nine months ended September 30, 1999
<TABLE>
<CAPTION>
FIDELITY
---------------------------------------------------------------------------------
TOTAL ASSET MONEY
FIDELITY MANAGER GROWTH OVERSEAS MARKET INDEX 500
------------ ----------- ----------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS
OPERATIONS
Net investment income (loss) $6,320,671 $737,259 $3,291,201 $688,321 $704,077 $899,813
Net realized gains (losses) on
investments 9,196,782 114,141 6,110,588 276,971 - 2,695,082
Net unrealized gains (losses) on
investments (4,797,945) (685,209) (5,671,895) 2,098,113 - (538,954)
------------ ----------- ----------- ------------ ------------ -------------
Increase (decrease) in net
assets from operations 10,719,508 166,191 3,729,894 3,063,405 704,077 3,055,941
------------ ----------- ----------- ------------ ------------ -------------
CHANGES FROM PRINCIPAL
TRANSACTIONS
Net premiums 77,880,480 2,465,876 6,610,837 4,280,132 41,327,338 23,196,297
Cost of insurance and
administrative charges (8,219,106) (451,606) (1,371,050) (775,628) (1,547,061) (4,073,761)
Benefit payments (519,243) - - - (519,243) -
Surrenders (5,903,232) (611,510) (665,962) (1,152,367) (1,149,832) (2,323,561)
Net transfers among divisions
(including the loan division
and
guaranteed interest division
in
the general account) (7,896,857) (1,322,166) 1,133,206 546,846 (22,310,341) 14,055,598
Other 74,220 (1,707) 25,166 20,753 (23,117) 53,125
------------ ----------- ----------- ------------ ------------ -------------
Increase (decrease) from
principal transactions 55,416,262 78,887 5,732,197 2,919,736 15,777,744 30,907,698
------------ ----------- ----------- ------------ ------------ -------------
Total increase (decrease) in 66,135,770 245,078 9,462,091 5,983,141 16,481,821 33,963,639
net assets
Net assets at beginning of 168,285,929 10,237,279 32,900,142 20,581,887 18,412,252 86,154,369
period ------------ ----------- ----------- ------------ ------------ -------------
Net assets at end of period $234,421,699 $10,482,357 $42,362,233 $26,565,028 $34,894,073 $120,118,008
============ =========== =========== ============ ============ =============
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Corporate Benefits 186
<PAGE>
Security Life Separate Account L1
Statement of Changes in Net Assets (continued)
(Unaudited)
Nine months ended September 30, 1999
<TABLE>
<CAPTION>
INVESCO
-------------------------------------------------------------------------------------
SMALL
TOTAL TOTAL INDUSTRIAL COMPANY
INVESCO RETURN INCOME HIGH YIELD UTILITIES GROWTH
------------- ------------- ------------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS
OPERATIONS
Net investment income (loss) ($196,400) ($52,259) ($69,936) ($48,767) ($16,883) ($8,555)
Net realized gains (losses) on
investments 916,656 282,794 423,686 (191,447) 298,134 103,489
Net unrealized gains (losses) on
investments 321,114 (720,172) 195,085 636,457 (165,901) 375,645
------------- ------------- ------------- ------------- ----------- ------------
Increase (decrease) in net
assets from
operations 1,041,370 (489,637) 548,835 396,243 115,350 470,579
------------- ------------- ------------- ------------- ----------- ------------
CHANGES FROM PRINCIPAL
TRANSACTIONS
Net premiums 9,878,594 3,952,616 3,467,604 1,336,363 782,410 339,601
Cost of insurance and
administrative charges (1,820,827) (579,891) (678,755) (354,536) (141,851) (65,794)
Benefit payments - - - - - -
Surrenders (1,465,154) (205,183) (302,722) (119,092) (819,566) (18,591)
Net transfers among divisions
(including the loan division
and guaranteed interest
division in the general
account) 519,983 (693,682) (187,353) (686,420) 1,304,087 783,351
Other (23,320) (7,978) (28,067) 4,823 2,443 5,459
------------- ------------- ------------- ------------- ----------- ------------
Increase (decrease) from
principal transactions 7,089,276 2,465,882 2,270,707 181,138 1,127,523 1,044,026
------------- ------------- ------------- ------------- ----------- ------------
Total increase (decrease) in 8,130,646 1,976,245 2,819,542 577,381 1,242,873 1,514,605
net assets
Net assets at beginning of 29,630,753 8,105,328 10,853,005 7,882,782 2,040,960 748,678
period ------------- ------------- ------------- ------------- ----------- ------------
Net assets at end of period $37,761,399 $10,081,573 $13,672,547 $8,460,163 $3,283,833 $2,263,283
============= ============= ============= ============= =========== ============
</TABLE>
See accompanying notes
- --------------------------------------------------------------------------------
Corporate Benefits 187
<PAGE>
Security Life Separate Account L1
Statement of Changes in Net Assets (continued)
(Unaudited)
Nine months ended September 30, 1999
<TABLE>
<CAPTION>
VAN ECK
-------------------------------------------------------------------
WORLDWIDE WORLDWIDE WORLDWIDE
TOTAL HARD WORLDWIDE EMERGING REAL
VAN ECK ASSETS BOND MARKETS ESTATE
------------ ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS
OPERATIONS
Net investment income (loss) $12,443 $7,888 $10,597 ($6,909) $867
Net realized gains (losses) on
investments 60,896 (325,719) (6,324) 391,099 1,840
Net unrealized gains (losses) on
investments 299,818 531,534 (21,361) (205,448) (4,907)
------------ ----------- ----------- ------------- -------------
Increase (decrease) in net
assets from operations 373,157 213,703 (17,088) 178,742 (2,200)
------------ ----------- ----------- ------------- -------------
CHANGES FROM PRINCIPAL
TRANSACTIONS
Net premiums 1,039,893 373,568 213,261 292,969 160,095
Cost of insurance and
administrative charges (122,396) (63,579) (12,138) (38,335) (8,344)
Benefit payments - - - - -
Surrenders (28,634) (23,333) - (839) (4,462)
Net transfers among divisions
(including the loan division
and
guaranteed interest division
in
the general account) 891,599 364,250 41,907 450,879 34,563
Other 18,860 15,574 1,437 1,328 521
------------ ----------- ----------- ------------- -------------
Increase (decrease) from
principal transactions 1,799,322 666,480 244,467 706,002 182,373
------------ ----------- ----------- ------------- -------------
Total increase (decrease) in 2,172,479 880,183 227,379 884,744 180,173
net assets
Net assets at beginning of 1,816,999 1,073,755 205,807 461,156 76,281
period
------------ ----------- ----------- ------------- -------------
Net assets at end of period $3,989,478 $1,953,938 $433,186 $1,345,900 $256,454
============ =========== =========== ============= =============
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Corporate Benefits 188
<PAGE>
Security Life Separate Account L1
Statement of Changes in Net Assets (continued)
(Unaudited)
Nine months ended September 30, 1999
AIM
---------------------------------------------
TOTAL CAPITAL GOVERNMENT
AIM APPRECIATION SECURITIES
-------------- -------------- --------------
INCREASE (DECREASE) IN NET
ASSETS
OPERATIONS
Net investment income (loss) ($32,701) ($11,381) ($21,320)
Net realized gains (losses) on
investments 22,945 29,983 (7,038)
Net unrealized gains (losses) on
investments 77,152 99,305 (22,153)
-------------- -------------- --------------
Increase (decrease) in net
assets from
operations 67,396 117,907 (50,511)
-------------- -------------- --------------
CHANGES FROM PRINCIPAL
TRANSACTIONS
Net premiums 2,268,264 1,133,728 1,134,536
Cost of insurance and
administrative charges (254,721) (145,653) (109,068)
Benefit payments - - -
Surrenders (600,694) (17,852) (582,842)
Net transfers among divisions
(including the loan division
and
guaranteed interest division
in
the general account) 2,553,774 757,045 1,796,729
Other 6,095 3,624 2,471
-------------- -------------- --------------
Increase (decrease) from
principal transactions 3,972,718 1,730,892 2,241,826
-------------- -------------- --------------
Total increase (decrease) in 4,040,114 1,848,799 2,191,315
net assets
Net assets at beginning of 3,800,153 1,204,436 2,595,717
period -------------- -------------- --------------
Net assets at end of period $7,840,267 $3,053,235 $4,787,032
============== ============== ==============
See accompanying notes.
- --------------------------------------------------------------------------------
Corporate Benefits 189
<PAGE>
Security Life Separate Account L1
Notes to Financial Statements
(Unaudited)
September 30, 1999
NOTE A. ORGANIZATION
Security Life Separate Account L1 (the "Separate Account") was established by
resolution of the Board of Directors of Security Life of Denver Insurance
Company (the "Company") on November 3, 1993. The Separate Account is organized
as a unit investment trust registered with the Securities and Exchange
Commission under the Investment Company Act of 1940.
The Separate Account supports the operations of the FirstLine Variable Universal
Life, Strategic Advantage Variable Universal Life and Variable Survivor
Universal Life ("Variable Universal Life Policies") policies offered by the
Company. The Separate Account may be used to support other variable life
policies as they are offered by the Company. The assets of the Separate Account
are the property of the Company. However, the portion of the Separate Account's
assets attributable to the policies will not be used to satisfy liabilities
arising out of any other operations of the Company.
As of September 30, 1999, the Separate Account offered twenty-three investment
divisions available to the policyholders, each of which invests in an
independently managed mutual fund portfolio ("Fund"). The Funds are as follows:
PORTFOLIO MANAGERS/PORTFOLIOS (FUNDS)
Neuberger Berman Management Incorporated (NB)
Neuberger Berman Limited Maturity Bond Portfolio
Neuberger Berman Growth Portfolio
Neuberger Berman Partners Portfolio
Fred Alger Management, Inc. (Alger)
Alger American Small Capitalization Portfolio
Alger American MidCap Growth Portfolio
Alger American Growth Portfolio
Alger American Leveraged AllCap Portfolio
Fidelity Management & Research Company (Fidelity)
Fidelity Investments VIP II Asset Manager Portfolio
Fidelity Investments VIP Growth Portfolio
Fidelity Investments VIP Overseas Portfolio
Fidelity Investments VIP Money Market Portfolio
Fidelity Investments VIP II Index 500 Portfolio
- --------------------------------------------------------------------------------
Corporate Benefits 190
<PAGE>
Security Life Separate Account L1
(Unaudited)
Notes to Financial Statements (continued)
NOTE A. ORGANIZATION (CONTINUED)
INVESCO Funds Group, Inc. (INVESCO)
INVESCO VIF Total Return Portfolio
INVESCO VIF Industrial Income Portfolio
INVESCO VIF High Yield Portfolio
INVESCO VIF Utilities Portfolio
INVESCO VIF Small Company Growth Portfolio
Van Eck Associates Corporation (Van Eck)
Van Eck Worldwide Hard Assets Portfolio
Van Eck Worldwide Real Estate Portfolio
Van Eck Worldwide Emerging Markets Portfolio
Van Eck Worldwide Bond Portfolio
AIM Advisors, Inc. (AIM)
AIM VI - Capital Appreciation Portfolio
AIM VI - Government Securities Portfolio
The Variable Universal Life Policies allow the policyholders to specify the
allocation of their net premium to the various Funds. They can also transfer
their account values among the Funds. The Variable Universal Life Policies also
provide the policyholders the option to allocate their net premiums, or to
transfer their account values, to a Guaranteed Interest Division ("GID") in the
Company's general account. The GID guarantees a rate of interest to the
policyholder, and it is not variable in nature. Therefore, it is not included in
these Separate Account statements.
- --------------------------------------------------------------------------------
Corporate Benefits 191
<PAGE>
Security Life Separate Account L1
(Unaudited)
Notes to Financial Statements (continued)
NOTE B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements of the Separate Account have been prepared
on the basis of generally accepted accounting principles ("GAAP"). The
preparation of financial statements in conformity with GAAP requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
The significant accounting principles followed by the Separate Account and the
methods of applying those principles are presented below or in the footnotes
which follow:
INVESTMENT VALUATION--The investments in shares of the Funds are valued at the
closing net asset value (market value) per share as determined by the Funds on
the day of measurement.
INVESTMENT TRANSACTIONS AND RELATED INVESTMENT INCOME--The investments in shares
of the Funds are accounted for on the date the order to buy or sell is
confirmed. Dividend income and distributions of capital gains are recorded on
the ex-dividend date. Realized gains and losses from sales transactions are
reported using the first-in, first-out ("FIFO") method of accounting for cost.
The difference between cost and current market value of investments owned on the
day of measurement is recorded as unrealized gain or loss on investment.
VALUATION PERIOD DEDUCTIONS--Charges are made directly against the assets of the
Separate Account divisions and are reflected daily in the computation of the
unit values of the divisions.
- --------------------------------------------------------------------------------
Corporate Benefits 192
<PAGE>
Security Life Separate Account L1
(Unaudited)
Notes to Financial Statements (continued)
NOTE B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
A daily deduction, at an annual rate of .75% of the daily asset value of the
Separate Account divisions, is charged to the Separate Account for mortality and
expense risks assumed by the Company. Total mortality and expense charged for
the nine months ended September 30, 1999 was $2,046,339.
POLICYHOLDER RESERVES--Policyholder reserves are recorded in the Separate
Account at the aggregate account values of the policyholders invested in the
Separate Account divisions. To the extent that benefits to be paid to the
policyholders exceed their account values, the Company will contribute
additional funds to the benefit proceeds.
- --------------------------------------------------------------------------------
Corporate Benefits 193
<PAGE>
Security Life Separate Account L1
(Unaudited)
Notes to Financial Statements (continued)
NOTE C. INVESTMENTS
Fund shares are purchased at net asset value with net premiums (premium
payments, less sales and tax loads charged by the Company) and divisional
transfers from other divisions. Fund shares are redeemed for the payment of
benefits, for surrenders, for transfers to other divisions, and for charges by
the Company for certain cost of insurance and administrative charges. The cost
of insurance and administrative charges for the nine months ended September 30,
1999 was $14,797,978. Dividends made by the Funds are reinvested in the Funds.
The following is a summary of Fund shares owned as of September 30, 1999:
<TABLE>
<CAPTION>
NUMBER NET VALUE
OF ASSET OF SHARES COST OF
FUND SHARES VALUE AT MARKET SHARES
- -------------------------------------------- ---------------- --------- -------------- -----------------
<S> <C> <C> <C> <C>
Neuberger Berman Management Inc.:
Limited Maturity Bond 990,754.879 $13.19 $13,068,057 $13,341,360
Growth 383,569.926 $25.08 9,619,934 9,144,677
Partners 1,393,453.900 $18.05 25,151,842 26,937,142
Fred Alger Management, Inc.:
American Small Capitalization 463,366.913 $42.08 19,498,480 19,206,039
American MidCap Growth 486,069.128 $25.66 12,472,535 12,434,368
American Growth 592,004.793 $52.92 31,328,893 29,186,588
American Leveraged AllCap 320,042.146 $41.36 13,236,944 12,430,665
Fidelity Management & Research Co.:
Asset Manager 610,859.913 $17.16 10,482,357 10,431,780
Growth 952,602.490 $44.47 42,362,233 41,979,868
Overseas 1,208,050.382 $21.99 26,565,028 23,798,192
Money Market 34,894,073.120 $1.00 34,894,073 34,894,073
Index 500 823,628.676 $145.84 120,118,008 104,570,094
INVESCO Funds Group, Inc.:
Total Return 634,061.153 $15.90 10,081,573 10,511,407
Industrial Income 690,881.639 $19.79 13,672,547 12,787,764
High Yield 709,150.330 $11.93 8,460,163 8,693,689
Utilities 172,198.950 $19.07 3,283,833 3,136,203
Small Company Growth 152,102.322 $14.88 2,263,283 1,813,540
Van Eck Associates Corporation:
Worldwide Hard Assets 183,640.729 $10.64 1,953,938 1,866,458
Worldwide Bond 39,669.059 $10.92 433,186 450,594
Worldwide Emerging Markets 148,063.782 $9.09 1,345,900 1,504,209
Worldwide Real Estate 26,966.790 $9.51 256,454 261,390
AIM Advisors, Inc.:
Capital Appreciation 113,756.899 $26.84 3,053,235 2,834,706
Government Securities 434,001.049 $11.03 4,787,032 4,774,323
------------ -------------
Total $408,389,528 $386,989,129
============ =============
</TABLE>
- --------------------------------------------------------------------------------
Corporate Benefits 194
<PAGE>
Security Life Separate Account L1
(Unaudited)
Notes to Financial Statements (continued)
NOTE C. INVESTMENTS (CONTINUED)
For the nine months ended September 30, 1999, the cost of purchases (plus
reinvested dividends) and sales of investments are as follows:
<TABLE>
<CAPTION>
BEGINNING END
FUND OF YEAR PURCHASES SALES OF YEAR
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Neuberger Berman Management Inc.:
Limited Maturity Bond $15,334,595 $4,863,022 ($6,856,257) $13,341,360
Growth 8,510,696 2,921,295 (2,287,314) 9,144,677
Partners 22,570,797 6,832,674 (2,466,329) 26,937,142
Fred Alger Management, Inc.:
American Small Capitalization 14,851,950 9,680,757 (5,326,668) 19,206,039
American MidCap Growth 7,858,579 5,128,822 (553,033) 12,434,368
American Growth 18,608,688 14,479,402 (3,901,502) 29,186,588
American Leveraged AllCap 5,293,171 11,199,357 (4,061,863) 12,430,665
Fidelity Management & Research Co.:
Asset Manager 9,501,494 5,409,681 (4,479,395) 10,431,780
Growth 26,845,882 49,460,163 (34,326,177) 41,979,868
Overseas 19,913,166 12,428,649 (8,543,623) 23,798,192
Money Market 18,412,252 83,637,874 (67,156,053) 34,894,073
Index 500 70,067,500 38,943,047 (4,440,453) 104,570,094
INVESCO Funds Group, Inc.:
Total Return 7,814,990 4,595,765 (1,899,348) 10,511,407
Industrial Income 10,163,306 4,303,132 (1,678,674) 12,787,764
High Yield 8,752,765 2,641,428 (2,700,504) 8,693,689
Utilities 1,727,429 2,282,360 (873,586) 3,136,203
Small Company Growth 674,581 1,581,087 (442,128) 1,813,540
Van Eck Associates Corporation:
Worldwide Hard Assets 1,517,809 1,870,712 (1,522,063) 1,866,458
Worldwide Bond 201,853 327,317 (78,576) 450,594
Worldwide Emerging Markets 414,017 4,479,244 (3,389,052) 1,504,209
Worldwide Real Estate 76,310 280,045 (94,965) 261,390
AIM Advisors, Inc.
Capital Appreciation 1,085,211 2,087,719 (338,224) 2,834,706
Government Securities 2,560,855 4,762,021 (2,548,553) 4,774,323
------------- ------------ --------------- -------------
Total $272,757,896 $274,195,573 ($159,964,340) $386,989,129
============= ============ =============== =============
</TABLE>
Aggregate proceeds from sales of investments for the nine months ended September
30, 1999 were $173,873,442.
- --------------------------------------------------------------------------------
Corporate Benefits 195
<PAGE>
Security Life Separate Account L1
(Unaudited)
Notes to Financial Statements (continued)
NOTE D. OTHER POLICY DEDUCTIONS
The Variable Universal Life Policies provide for certain deductions for sales
and tax loads from premium payments received from the policyholders and for
surrender charges and taxes from amounts paid to policyholders. Such deductions
are taken before the purchase of divisional units or after the redemption of
divisional units of the Separate Account. Such deductions are not included in
the Separate Account financial statements.
NOTE E. POLICY LOANS
The Variable Universal Life Policies allow the policyholders to borrow against
their policies by using them as collateral for a loan. At the time of borrowing
against the policies, an amount equal to the loan amount is transferred from the
Separate Account divisions to a Loan Division in the Company's General Account
to secure the loan. As payments are made on the policy loan, amounts are
transferred back from the Loan Division to the Separate Account divisions.
Interest is credited to the balance in the Loan Division at a fixed rate. The
Loan Division is not variable in nature and is not included in these Separate
Account statements.
NOTE F. FEDERAL INCOME TAXES
The Separate Account is not taxed separately because the operations of the
Separate Account are part of the total operations of the Company. The Company is
taxed as a life insurance company under the Internal Revenue Code. The Separate
Account is not taxed as a "Regulated Investment Company" under subchapter "M" of
the Internal Revenue Code.
- --------------------------------------------------------------------------------
Corporate Benefits 196
<PAGE>
Security Life Separate Account L1
(Unaudited)
Notes to Financial Statements (continued)
NOTE G. SUMMARY OF CHANGES IN UNITS
The following schedule summarizes the changes in divisional units for the nine
months ended September 30, 1999:
<TABLE>
<CAPTION>
(DECREASE)
FOR
OUTSTANDING INCREASE WITHDRAWALS OUTSTANDING
AT BEGINNING FOR PAYMENTS AND OTHER AT END
DIVISION OF YEAR RECEIVED DEDUCTIONS OF YEAR
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Neuberger Berman Management Inc.:
Limited Maturity Bond 1,245,559.121 319,332.671 (525,269.118) 1,039,622.674
Growth 447,486.376 125,919.627 (99,517.630) 473,888.373
Partners 986,298.018 257,003.976 (117,939.937) 1,125,362.057
Fred Alger Management, Inc.:
American Small Capitalization 838,692.418 394,407.340 (263,508.506) 969,591.252
American MidCap Growth 402,532.472 148,230.643 (29,117.984) 521,645.131
American Growth 923,696.066 438,134.681 (206,209.462) 1,155,621.285
American Leveraged AllCap 221,642.446 292,852.027 (173,072.134) 341,422.339
Fidelity Management & Research Co.:
Asset Manager 600,255.213 267,313.961 (262,352.258) 605,216.916
Growth 1,293,480.338 1,654,759.376 (1,442,829.875) 1,505,409.839
Overseas 1,429,659.907 765,975.800 (571,856.489) 1,623,779.218
Money Market 1,526,404.399 6,748,481.247 (5,469,895.852) 2,804,989.794
Index 500 3,215,990.519 1,324,678.050 (246,138.425) 4,294,530.144
INVESCO Funds Group, Inc.:
Total Return 450,557.216 253,716.704 (116,427.098) 587,846.822
Industrial Income 473,616.752 178,044.695 (87,379.689) 564,281.758
High Yield 486,858.648 158,273.720 (146,595.951) 498,536.417
Utilities 110,379.616 115,690.556 (59,547.200) 166,522.972
Small Company Growth 67,506.441 136,205.871 (44,885.435) 158,826.877
Van Eck Associates Corporation:
Worldwide Hard Assets 132,513.824 205,152.684 (131,337.258) 206,329.250
Worldwide Bond 18,656.317 30,172.136 (6,893.700) 41,934.753
Worldwide Emerging Markets 67,354.295 498,961.101 (411,436.225) 154,879.171
Worldwide Real Estate 8,765.232 31,025.290 (10,681.101) 29,109.421
AIM Advisors, Inc.
Capital Appreciation 105,457.867 177,801.435 (30,925.831) 252,333.471
Government Securities 246,150.062 461,371.899 (245,006.792) 462,515.169
</TABLE>
- --------------------------------------------------------------------------------
Corporate Benefits 197
<PAGE>
Security Life Separate Account L1
(Unaudited)
Notes to Financial Statements (continued)
NOTE H. NET ASSETS
Net assets at September 30, 1999 consisted of the following:
<TABLE>
<CAPTION>
ACCUMULATED NET
ACCUMULATED NET REALIZED UNREALIZED
INVESTMENT GAINS GAINS
PRINCIPAL INCOME (LOSSES) ON (LOSSES) ON
DIVISION TRANSACTIONS (LOSS) INVESTMENTS INVESTMENTS NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Neuberger Berman Management Inc.:
Limited Maturity Bond $12,562,603 $1,060,309 ($281,553) ($273,302) $13,068,057
Growth 8,793,027 627,076 (275,425) 475,256 9,619,934
Partners 25,178,621 851,608 906,913 (1,785,300) 25,151,842
Fred Alger Management, Inc.:
American Small Capitalization 17,061,250 2,257,234 (112,445) 292,441 19,498,480
American MidCap Growth 10,432,084 1,605,541 396,745 38,165 12,472,535
American Growth 24,617,360 2,618,200 1,951,027 2,142,306 31,328,893
American Leveraged AllCap 9,195,995 648,266 2,586,404 806,279 13,236,944
Fidelity Management & Research Co.:
Asset Manager 9,355,520 920,583 155,678 50,576 10,482,357
Growth 31,627,570 3,555,730 6,796,617 382,316 42,362,233
Overseas 22,063,364 1,088,395 646,434 2,766,835 26,565,028
Money Market 33,253,155 1,640,918 - - 34,894,073
Index 500 100,251,140 1,273,803 3,045,152 15,547,913 120,118,008
INVESCO Funds Group, Inc.:
Total Return 10,115,714 36,014 359,679 (429,834) 10,081,573
Industrial Income 11,796,930 418,112 572,722 884,783 13,672,547
High Yield 7,933,708 597,561 162,419 (233,525) 8,460,163
Utilities 2,735,480 10,273 390,449 147,631 3,283,833
Small Company Growth 1,718,607 (8,555) 103,489 449,742 2,263,283
Van Eck Associates Corporation:
Worldwide Hard Assets 2,149,636 16,934 (300,111) 87,479 1,953,938
Worldwide Bond 446,321 10,597 (6,324) (17,408) 433,186
Worldwide Emerging Markets 1,120,018 (6,909) 391,099 (158,308) 1,345,900
Worldwide Real Estate 258,684 866 1,840 (4,936) 256,454
AIM Advisors, Inc.:
Capital Appreciation 2,816,104 (11,381) 29,983 218,529 3,053,235
Government Securities 4,802,681 (21,320) (7,038) 12,709 4,787,032
============= ============= ============== ============ =============
Total $350,285,572 $19,189,855 $17,513,754 $21,400,347 $408,389,528
============= ============= ============== ============ =============
</TABLE>
- --------------------------------------------------------------------------------
Corporate Benefits 198
<PAGE>
Security Life Separate Account L1
(Unaudited)
Notes to Financial Statements (continued)
NOTE I. YEAR 2000 (UNAUDITED)
Security Life of Denver Insurance Company is aware of the computer problems that
may exist surrounding the Year 2000. Our senior management is committed to
ensuring that information processing and delivery systems will be Year 2000
compliant before December 31, 1999. Our project team continues to implement the
Year 2000 project plan which includes the analysis, remediation and testing of
our in-house source code. The project plan covers Security Life, ING America
Equities, Inc., Midwestern United Life Insurance Company and First ING Life
Insurance Company of New York. We will follow our normal project management
methodology, including communication with senior management on a monthly and
as-needed basis. Funds have been allocated for these efforts, and we are
confident we have sufficient resources to ensure Year 2000 processing
capabilities.
The analysis, remediation and system testing phases of the plan were completed
by June 28, 1999. We will continue to do precautionary testing throughout 1999.
However, there is no assurance Security Life will be successful, or that
interaction with other service providers will not impact our services.
- --------------------------------------------------------------------------------
Corporate Benefits 199
<PAGE>
APPENDIX A
FACTORS FOR THE
CASH VALUE ACCUMULATION TEST
FOR A LIFE INSURANCE POLICY
<TABLE>
<CAPTION>
Male | Male | Male
Attained or Unisex Unisex |Attained or Unisex Unisex | Attained or Unisex Unisex
Age 100/0 Female 80/20 | Age 100/0 Female 80/20 | Age 100/0 Female 80/20
--- ----- ------ ----- | --- ----- ------ ----- | --- ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0 11.727 14.234 12.149 |
1 11.785 14.209 12.194 | 34 4.188 4.902 4.314 | 67 1.617 1.815 1.657
2 11.458 13.815 11.857 | 35 4.052 4.742 4.173 | 68 1.583 1.769 1.620
3 11.128 13.417 11.515 | 36 3.920 4.586 4.037 | 69 1.550 1.724 1.585
4 10.803 13.023 11.178 | 37 3.793 4.437 3.906 | 70 1.518 1.681 1.552
5 10.481 12.635 10.845 | 38 3.670 4.293 3.780 | 71 1.488 1.639 1.520
6 10.161 12.253 10.514 | 39 3.553 4.154 3.658 | 72 1.459 1.599 1.489
7 9.844 11.875 10.187 | 40 3.439 4.021 3.541 | 73 1.432 1.560 1.460
8 9.530 11.505 9.863 | 41 3.330 3.894 3.429 | 74 1.406 1.524 1.433
9 9.221 11.141 9.545 | 42 3.226 3.771 3.322 | 75 1.382 1.490 1.407
10 8.918 10.784 9.233 | 43 3.125 3.654 3.218 | 76 1.359 1.457 1.383
11 8.623 10.436 8.928 | 44 3.028 3.541 3.119 | 77 1.338 1.427 1.360
12 8.338 10.098 8.634 | 45 2.936 3.432 3.023 | 78 1.318 1.398 1.338
13 8.066 9.771 8.353 | 46 2.846 3.328 2.931 | 79 1.299 1.371 1.318
14 7.808 9.455 8.085 | 47 2.761 3.227 2.843 | 80 1.281 1.345 1.298
15 7.564 9.150 7.831 | 48 2.678 3.129 2.758 | 81 1.264 1.321 1.280
16 7.335 8.857 7.592 | 49 2.599 3.035 2.676 | 82 1.248 1.298 1.262
17 7.118 8.575 7.364 | 50 2.522 2.945 2.597 | 83 1.233 1.277 1.245
18 6.911 8.302 7.148 | 51 2.449 2.858 2.522 | 84 1.218 1.257 1.230
19 6.713 8.038 6.939 | 52 2.378 2.774 2.449 | 85 1.205 1.238 1.215
20 6.521 7.782 6.737 | 53 2.311 2.693 2.379 | 86 1.193 1.221 1.202
21 6.334 7.534 6.540 | 54 2.246 2.615 2.312 | 87 1.181 1.205 1.189
22 6.150 7.293 6.347 | 55 2.184 2.540 2.248 | 88 1.171 1.190 1.177
23 5.969 7.059 6.158 | 56 2.125 2.468 2.187 | 89 1.160 1.176 1.166
24 5.791 6.831 5.971 | 57 2.068 2.398 2.128 | 90 1.151 1.163 1.155
25 5.615 6.611 5.788 | 58 2.014 2.330 2.071 | 91 1.141 1.150 1.144
26 5.441 6.396 5.608 | 59 1.962 2.265 2.017 | 92 1.131 1.137 1.133
27 5.271 6.188 5.431 | 60 1.912 2.201 1.965 | 93 1.120 1.125 1.122
28 5.104 5.986 5.258 | 61 1.864 2.139 1.915 | 94 1.109 1.112 1.110
29 4.940 5.791 5.089 | 62 1.818 2.079 1.867 | 95 1.097 1.098 1.097
30 4.781 5.601 4.925 | 63 1.774 2.022 1.821 | 96 1.083 1.084 1.084
31 4.626 5.418 4.765 | 64 1.732 1.967 1.777 | 97 1.069 1.069 1.069
32 4.476 5.241 4.610 | 65 1.692 1.914 1.735 | 98 1.054 1.054 1.054
33 4.330 5.069 4.459 | 66 1.654 1.863 1.695 | 99 1.040 1.040 1.040
| | 100 1.000 1.000 1.000
</TABLE>
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Corporate Benefits 200
<PAGE>
APPENDIX B
PERFORMANCE INFORMATION
POLICY PERFORMANCE
The following hypothetical illustrations demonstrate how the actual investment
experience of each variable investment option of the separate account affects
the cash surrender value, account value and death benefit of a policy. These
hypothetical illustrations are based on the actual historical return of each
portfolio as if a policy had been issued on the date indicated. Each portfolio's
annual total return is based on the total return calculated for each fiscal
year. These annual total return figures reflect the portfolio's management fees
and other operating expenses but do not reflect the policy level or separate
account asset-based charges and deductions, which if reflected, would result in
lower total return figures than those shown.
The illustrations are based on the payment of a $5,750 annual premium, received
at the beginning of each year, for a hypothetical policy with a $300,000 face
amount death benefit Option 1, issued on a nonsmoker male, Age 45. It is assumed
that all premiums are allocated to the variable investment option illustrated
for the period shown. The benefits are calculated for a specific date. The
amount and timing of premium payments and the use of other policy features, such
as policy loans, would affect individual policy benefits.
The amounts shown for the cash surrender values, account values and death
benefits take into account the charges against premiums, current cost of
insurance and monthly deductions, the daily charge against the separate account
for mortality and expense risks, and each portfolio's charges and expenses. SEE
CHARGES, PAGE 40. This prospectus also contains illustrations based on assumed
rates of return. SEE ILLUSTRATIONS OF DEATH BENEFITS, ACCOUNT VALUES, SURRENDER
VALUES AND ACCUMULATED PREMIUMS, PAGE 48.
Past performance is not an indication of future results. Actual investment
results may be more or less than those shown in the hypothetical illustrations.
- --------------------------------------------------------------------------------
Corporate Benefits 201
<PAGE>
HYPOTHETICAL ILLUSTRATIONS
Nonsmoker Male Age 45
Preferred Risk Class Death Benefit Option 1
Stated Death Benefit $300,000 Annual Premium $5,750
- --------------------------------------------------------------------------------
AIM VI CAPITAL APPRECIATION FUND
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
1994 2.50% 5,131 5,131 300,000
1995 35.69% 13,809 13,809 300,000
1996 17.58% 21,973 21,973 300,000
1997 13.51% 30,308 30,308 300,000
1998 19.30% 41,638 41,638 300,000
AIM VI GOVERNMENT SECURITIES FUND
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
1994 -3.73% 4,808 4,808 300,000
1995 15.56% 11,360 11,360 300,000
1996 2.29% 16,588 16,588 300,000
1997 8.16% 23,050 23,050 300,000
1998 7.66% 29,742 29,742 300,000
ALGER AMERICAN GROWTH PORTFOLIO
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
1990 4.14% 5,216 5,216 300,000
1991 40.39% 14,413 14,413 300,000
1992 12.38% 21,671 21,671 300,000
1993 22.47% 32,348 32,348 300,000
1994 1.45% 37,441 37,441 300,000
1995 36.37% 57,266 57,266 300,000
1996 13.35% 69,935 69,935 300,000
1997 25.75% 93,461 93,461 300,000
1998 48.07% 145,016 145,016 335,131
ALGER AMERICAN MIDCAP GROWTH PORTFOLIO
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
1994 -1.54% 4,921 4,921 300,000
1995 44.45% 14,410 14,410 300,000
1996 11.90% 21,575 21,575 300,000
1997 15.01% 30,254 30,254 300,000
1998 30.30% 45,429 45,429 300,000
The assumptions underlying these values are described in Performance
Information, page 201.
*These annual total return figures reflect the portfolio's management fees and
other operating expenses but do not reflect the policy level or separate account
asset-based charges and deductions which, if reflected, would result in lower
total return figures than those shown.
- --------------------------------------------------------------------------------
Corporate Benefits 202
<PAGE>
HYPOTHETICAL ILLUSTRATIONS (continued)
Nonsmoker Male Age 45
Preferred Risk Class Death Benefit Option 1
Stated Death Benefit $300,000 Annual Premium $5,750
ALGER AMERICAN SMALL CAPITALIZATION PORTFOLIO
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
1989 64.48% 8,354 8,354 300,000
1990 8.71% 14,528 14,528 300,000
1991 57.54% 30,643 30,643 300,000
1992 3.55% 36,602 36,602 300,000
1993 13.28% 46,650 46,650 300,000
1994 -4.38% 48,877 48,877 300,000
1995 44.31% 77,017 77,017 300,000
1996 4.18% 84,752 84,752 300,000
1997 11.39% 99,306 99,306 300,000
1998 15.53% 119,862 119,862 300,000
FIDELITY VIP GROWTH PORTFOLIO
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
1989 31.51% 6,637 6,637 300,000
1990 -11.73% 10,251 10,251 300,000
1991 45.51% 22,069 22,069 300,000
1992 9.32% 29,287 29,287 300,000
1993 19.37% 40,444 40,444 300,000
1994 -0.02% 44,915 44,915 300,000
1995 35.36% 66,859 66,859 300,000
1996 14.71% 81,698 81,698 300,000
1997 23.48% 106,351 106,351 300,000
1998 39.49% 154,612 154,612 347,259
FIDELITY VIP OVERSEAS PORTFOLIO
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
1989 26.28% 6,365 6,365 300,000
1990 -1.67% 11,171 11,171 300,000
1991 8.00% 17,320 17,320 300,000
1992 -10.72% 19,644 19,644 300,000
1993 37.35% 33,336 33,336 300,000
1994 1.72% 38,474 38,474 300,000
1995 9.74% 47,081 47,081 300,000
1996 13.15% 58,205 58,205 300,000
1997 11.56% 69,836 69,836 300,000
1998 12.81% 83,772 83,772 300,000
The assumptions underlying these values are described in Performance
Information, page 201.
*These annual total return figures reflect the portfolio's management fees and
other operating expenses but do not reflect the policy level or separate account
asset-based charges and deductions which, if reflected, would result in lower
total return figures than those shown.
- --------------------------------------------------------------------------------
Corporate Benefits 203
<PAGE>
HYPOTHETICAL ILLUSTRATIONS (continued)
Nonsmoker Male Age 45
Preferred Risk Class Death Benefit Option 1
Stated Death Benefit $300,000 Annual Premium $5,750
FIDELITY VIP II INDEX 500 PORTFOLIO
Year Annual Total Cash Surrender Account Benefit
Ended Return * Value Value Death
1993 9.74% 5,506 5,506 300,000
1994 1.04% 10,616 10,616 300,000
1995 37.19% 21,296 21,296 300,000
1996 22.82% 31,981 31,981 300,000
1997 32.82% 48,605 48,605 300,000
1998 28.31% 68,184 68,184 300,000
GCG TRUST EQUITY INCOME PORTFOLIO
Year Annual Total Cash Surrender Account Benefit
Ended Return * Value Value Death
1990 4.74% 5,247 5,247 300,000
1991 20.02% 12,332 12,332 300,000
1992 1.88% 17,510 17,510 300,000
1993 11.13% 24,712 24,712 300,000
1994 -1.18% 28,923 28,923 300,000
1995 18.93% 39,781 39,781 300,000
1996 8.77% 48,084 48,084 300,000
1997 17.44% 61,601 61,601 300,000
1998 8.26% 71,438 71,438 300,000
GCG TRUST GROWTH PORTFOLIO
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
1997 15.69% 5,815 5,815 300,000
1998 45.36% 15,800 15,800 300,000
GCG TRUST HARD ASSETS PORTFOLIO
Year Annual Total Cash Surrender Account Benefit
Ended Return * Value Value Death
1990 -13.84% 4,284 4,284 300,000
1991 4.70% 9,729 9,729 300,000
1992 -9.81% 13,134 13,134 300,000
1993 49.93% 26,864 26,864 300,000
1994 2.53% 32,221 32,221 300,000
1995 10.69% 40,656 40,656 300,000
1996 33.17% 60,102 60,102 300,000
1997 6.22% 68,451 68,451 300,000
1998 -29.58% 51,183 51,183 300,000
The assumptions underlying these values are described in Performance
Information, page 201.
*These annual total return figures reflect the portfolio's management fees and
other operating expenses but do not reflect the policy level or separate account
asset-based charges and deductions which, if reflected, would result in lower
total return figures than those shown.
- --------------------------------------------------------------------------------
Corporate Benefits 204
<PAGE>
HYPOTHETICAL ILLUSTRATIONS (continued)
Nonsmoker Male Age 45
Preferred Risk Class Death Benefit Option 1
Stated Death Benefit $300,000 Annual Premium $5,750
GCG TRUST LIMITED MATURITY BOND PORTFOLIO
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
1990 7.87% 5,409 5,409 300,000
1991 11.27% 11,601 11,601 300,000
1992 4.84% 17,258 17,258 300,000
1993 6.20% 23,339 23,339 300,000
1994 -1.19% 27,564 27,564 300,000
1995 11.72% 35,835 35,835 300,000
1996 4.32% 41,990 41,990 300,000
1997 6.67% 49,423 49,423 300,000
1998 6.86% 57,494 57,494 300,000
GCG TRUST LIQUID ASSET PORTFOLIO
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
1990 7.75% 5,403 5,403 300,000
1991 5.66% 11,000 11,000 300,000
1992 3.13% 16,355 16,355 300,000
1993 2.64% 21,624 21,624 300,000
1994 3.89% 27,211 27,211 300,000
1995 5.51% 33,457 33,457 300,000
1996 5.01% 39,773 39,773 300,000
1997 5.07% 46,348 46,348 300,000
1998 5.13% 53,324 53,324 300,000
GCG TRUST MID-CAP GROWTH PORTFOLIO
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
1995 29.23% 6,519 6,519 300,000
1996 20.68% 13,934 13,934 300,000
1997 19.67% 22,517 22,517 300,000
1998 42.61% 38,912 38,912 300,000
GCG TRUST RESEARCH PORTFOLIO
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
1995 36.58% 6,901 6,901 300,000
1996 23.37% 14,720 14,720 300,000
1997 20.12% 23,546 23,546 300,000
1998 40.94% 39,902 39,902 300,000
The assumptions underlying these values are described in Performance
Information, page 201.
*These annual total return figures reflect the portfolio's management fees and
other operating expenses but do not reflect the policy level or separate account
asset-based charges and deductions which, if reflected, would result in lower
total return figures than those shown.
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Corporate Benefits 205
<PAGE>
HYPOTHETICAL ILLUSTRATIONS (continued)
Nonsmoker Male Age 45
Preferred Risk Class Death Benefit Option 1
Stated Death Benefit $300,000 Annual Premium $5,750
GCG TRUST TOTAL RETURN PORTFOLIO
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
1995 24.51% 6,273 6,273 300,000
1996 13.70% 12,839 12,839 300,000
1997 20.89% 21,426 21,426 300,000
1998 19.29% 31,211 31,211 300,000
INVESCO VIF EQUITY INCOME FUND
Year Annual Total Cash Surrender Account Benefit
Ended Return * Value Value Death
1995 29.25% 6,520 6,520 300,000
1996 22.28% 14,123 14,123 300,000
1997 28.17% 24,372 24,372 300,000
1998 15.30% 33,554 33,554 300,000
INVESCO VIF HIGH YIELD FUND
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
1995 19.76% 6,027 6,027 300,000
1996 16.59% 12,883 12,883 300,000
1997 17.33% 20,840 20,840 300,000
1998 1.42% 25,909 25,909 300,000
INVESCO VIF SMALL COMPANY GROWTH FUND
Year Annual Total Cash Surrender Account Benefit
Ended Return * Value Value Death
1998 16.38% 5,851 5,851 300,000
NEUBERGER BERMAN AMT PARTNERS PORTFOLIO
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
1995 36.47% 6,895 6,895 300,000
1996 29.57% 15,461 15,461 300,000
1997 31.25% 26,719 26,719 300,000
1998 4.21% 32,749 32,749 300,000
The assumptions underlying these values are described in Performance
Information, page 201.
*These annual total return figures reflect the portfolio's management fees and
other operating expenses but do not reflect the policy level or separate account
asset-based charges and deductions which, if reflected, would result in lower
total return figures than those shown.
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Corporate Benefits 206
<PAGE>
HYPOTHETICAL ILLUSTRATIONS (continued)
Nonsmoker Male Age 45
Preferred Risk Class Death Benefit Option 1
Stated Death Benefit $300,000 Annual Premium $5,750
VAN ECK WORLDWIDE BOND FUND
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
1990 11.25% 5,585 5,585 300,000
1991 18.39% 12,562 12,562 300,000
1992 -5.25% 16,489 16,489 300,000
1993 7.79% 22,863 22,863 300,000
1994 -1.32% 27,058 27,058 300,000
1995 17.30% 37,045 37,045 300,000
1996 2.53% 42,505 42,505 300,000
1997 2.38% 47,950 47,950 300,000
1998 12.75% 59,020 59,020 300,000
VAN ECK WORLDWIDE EMERGING MARKETS FUND
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
1996 26.82% 6,393 6,393 300,000
1997 -11.61% 10,050 10,050 300,000
1998 -34.15% 9,755 9,755 300,000
VAN ECK WORLDWIDE REAL ESTATE FUND
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
1998 -11.35% 4,413 4,413 300,000
The assumptions underlying these values are described in Performance
Information, page 201.
*These annual total return figures reflect the portfolio's management fees and
other operating expenses but do not reflect the policy level or separate account
asset-based charges and deductions which, if reflected, would result in lower
total return figures than those shown.
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Corporate Benefits 207
<PAGE>
PART II
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities Exchange
Act of 1934, the undersigned Registrant hereby undertakes to file with the
Securities and Exchange Commission such supplementary and periodic information,
documents, and reports as may be prescribed by any rule or regulation of the
Commission heretofore or hereafter duly adopted pursuant to authority conferred
in that section.
UNDERTAKING REGARDING INDEMNIFICATION
Please refer to the Articles of Incorporation listed as Exhibits 1.A(6)(a) and
1.A(6)(b-g) and the By-Laws listed as Exhibits 1.A(6)(h) and 1.A(6)(h)(i).
Security Life of Denver's (the "corporation") Certificate of Incorporation and
bylaws provide that the corporation shall have every power and duty of
indemnification of directors, officers, employees and agents, without
limitation, provided by the laws of the state of Colorado. Under Colorado law,
the corporation has the power to indemnify such persons against expenses,
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such person in connection with any threatened, pending or completed action,
suit or proceeding, if such person acted in good faith and in a manner which
that person reasonably believed to be in or not opposed to the best interest of
the corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. In the case of actions by
or in the right of the corporation, such indemnification cannot be made where
such person is adjudged liable to the corporation, except pursuant to a court
order. The corporation is required to indemnify directors, officers, employees
and agents against expense actually and reasonably incurred in connection with
actions where such persons have been successful on the merits or otherwise in
defense of such actions.
Insofar as indemnification for liability arising under the Securities Act of
1933 (the "Act") may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the securities and Exchange
commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling preceding, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
UNDERTAKING REQUIRED BY SECTION 26(e)(2)(A) OF THE INVESTMENT
COMPANY ACT OF 1940, AS AMENDED
Security Life of Denver Insurance Company represents that the fees and charges
deducted under the Policy, in the aggregate, are reasonable in relation to the
services rendered, the expenses expected to be incurred and the risks assumed by
the Company.
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet.
Cross-Reference table.
- --------------------------------------------------------------------------------
Corporate Benefits II - 1
<PAGE>
The prospectus.
The undertaking to file reports.
The undertaking regarding indemnification.
The undertaking required by Section 26(e)2(A) of the Investment Company Act
of 1940, as amended.
The signatures.
Written consents of the following persons:
James L. Livingston, Jr. (See Exhibit 6B).
Ernst & Young, L.L.P. (See Exhibit 7A).
Sutherland Asbill & Brennan LLP (See Exhibit 7B).
The following exhibits:
1.A (1) Resolution of the Executive Committee of the Board of Directors of
Security Life of Denver Insurance Company ("Security Life of Denver")
authorizing the establishment of the Registrant. /1/
(2) Not Applicable.
(3) (a) Security Life of Denver Distribution Agreement./1/
(i) Amendment to Security Life of Denver Insurance Company
Distribution Agreement./6/
(b) Amendment to Broker/Dealer Supervisory and Selling Agreement
for Variable Contracts with Compensation Schedule.
(c) Commission Schedule for Policies.
(4) Not Applicable.
(5) (a) Specimen Corporate Benefits Variable Universal Life Insurance
Policy (Form No. 2505(VUL)-2/00).
(b) Adjustable Term Insurance Rider (Form No. R2006-3/00)./5/
(c) Certificate of Insurance./5/
(6) (a) Security Life of Denver's Restated Articles of Incorporation.
/1/
(b-g) Amendments to Articles of Incorporation through June 12,
1987./1/
(h) Security Life of Denver's By-Laws./1/
(i) Bylaws of Security Life of Denver Insurance Company
(Restated with Amendments through September 30, 1997)./2/
(7) Not Applicable.
(8) (a) Participation Agreements
(i) Participation Agreement by and among AIM Variable
Insurance Funds, Inc., Life Insurance Company, on
Behalf of Itself and its Separate Accounts and Name of
Underwriter of Variable Contracts and Policies./3/
(ii) Sales Agreement by and among The Alger American Fund,
Fred Alger Management, Inc., and Security Life of
Denver Insurance Company./1/
(iii) Sales Agreement by and among Neuberger & Berman
Advisers Management Trust, Neuberger & Berman
Management Incorporated, and Security Life of Denver
Insurance Company./1/
(iv) Participation Agreement among Variable Insurance
Products Fund, Fidelity Distributors Corporation and
Security Life of Denver Insurance Company./1/
- --------------------------------------------------------------------------------
Corporate Benefits II - 2
<PAGE>
(v) Participation Agreement among Variable Insurance
Products Fund II, Fidelity Distributors Corporation and
Security Life of Denver Insurance Company./1/
(vi) Participation Agreement among INVESCO Variable
Investment Funds, Inc., INVESCO Funds Group, Inc., and
Security Life of Denver Insurance Company./1/
(vii) Participation Agreement between Van Eck Investment
Trust and the Trust's investment adviser, Van Eck
Associates Corporation, and Security Life of Denver
Insurance Company./1/
(viii) Specimen Participation Agreement among Security Life of
Denver Insurance Company, the GCG Trust, and Directed
Services, Inc.
(b) (i) Third Amendment to Participation Agreement among
Security Life of Denver Insurance Company, INVESCO
Variable Investment Funds, Inc. and INVESCO Funds
Group, Inc./4/
(ii) Fourth Amendment to Participation Agreement among
Variable Insurance Products Fund, Fidelity Distributors
Corporation and Security Life of Denver Insurance
Company./4/
(iii) Fourth Amendment to Participation Agreement among
Variable Insurance Products Fund II, Fidelity
Distributors Corporation and Security Life of Denver
Insurance Company./4/
(iv) Amendment No. 2 to Participation Agreement among AIM
Variable Insurance Funds, Inc., Security Life of Denver
Insurance Company and ING America Equities, Inc./4/
(v) Fourth Amendment to Participation Agreement among
Security Life of Denver Insurance Company, INVESCO
Variable Investment Funds, Inc. and INVESCO Funds
Group, Inc./6/
(vi) Amendment No. 3 to Participation Agreement among AIM
Variable Insurance Funds, Inc., Security Life of Denver
Insurance Company and ING America Equities, Inc./6/
(vii) Fifth Amendment to Participation Agreement among
Variable Insurance Products Fund, Fidelity Distributors
Corporation and Security Life of Denver Insurance
Company./6/
(viii) Fifth Amendment to Participation Agreement among
Variable Insurance Products Fund II, Fidelity
Distributors Corporation and Security Life of Denver
Insurance Company./6/
(9) Not Applicable.
(10) Specimen Guaranteed Issue Variable Life Insurance Application with
Corporate Benefits Insert and Guaranteed Issue Binding Limited Life
Insurance Coverage Form (Form Nos. Q2009-11/97 and Q-1112 B-6/98).
2. Included as Exhibit 1.A(5) above.
3.A Opinion and consent of Gary W. Waggoner as to securities being
registered./5/
4. Not Applicable.
5. Not Applicable.
6.B Opinion and consent of James L. Livingston, Jr.
7.A Consent of Ernst & Young L.L.P.
B Consent of Sutherland Asbill & Brennan LLP.
8. Not Applicable.
11. Issuance, Transfer and Redemption Procedures Memorandum./6/
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Corporate Benefits II - 3
<PAGE>
- ---------------
/1/ Incorporated herein by reference to Post-Effective Amendment No. 7 to the
Form S-6 Registration Statement of Security Life of Denver Insurance
Company and its Security Life Separate Account L1, filed with the
Securities and Exchange Commission on April 27, 1998 (File No. 33-74190).
/2/ Incorporated herein by reference to Post-Effective Amendment No. 5 to the
Form S-6 Registration Statement of Security Life of Denver Insurance
Company and its Security Life Separate Account L1, filed with the
Securities and Exchange Commission on October 29, 1998 (File No. 33-74190).
/3/ Incorporated herein by reference to Post-Effective Amendment No. 6 to the
Form S-6 Registration Statement of Security Life of Denver Insurance
Company and its Security Life Separate Account L1, filed with the
Securities and Exchange Commission on March 2, 1998 (File No. 33-74190).
/4/ Incorporated herein by reference to the Pre-Effective Amendment No. 2 to
the Form S-6 Registration Statement of Security Life of Denver Insurance
Company and its Security Life Separate Account L1, filed with the
Securities and Exchange Commission on May 10, 1999 (File No. 333-72753).
/5/ Incorporated herein by reference to the Initial Registration to the Form
S-6 Registration Statement of Security Life of Denver Insurance Company and
its Security Life Separate Account L1, filed with the Securities and
Exchange Commission on November 8, 1999 (File No. 333-90577).
/6/ Incorporated herein by reference to the Pre-Effective Amendment No. 1 to
the Form S-6 Registration Statement of Security Life of Denver Insurance
Company and its Security Life Separate Account L1, filed with the
Securities and Exchange Commission on December 3, 1999 (File No.
333-90577).
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Corporate Benefits II - 4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Security Life of
Denver Insurance Company and the Registrant, Security Life Separate Account L1,
have duly caused this Registration Statement to be signed on their behalf by the
undersigned, hereunto duly authorized, and their seal to be hereunto fixed and
attested, all in the City and County of Denver and the State of Colorado on the
1st day of February, 2000.
SECURITY LIFE OF DENVER INSURANCE COMPANY
(Depositor)
BY: /s/ Stephen M. Christopher
-----------------------------
Stephen M. Christopher
President
(Seal)
ATTEST:
/s/ Gary W. Waggoner
- ---------------------
Gary W. Waggoner
SECURITY LIFE SEPARATE ACCOUNT L1
(Registrant)
BY: SECURITY LIFE OF DENVER INSURANCE COMPANY
(Depositor)
BY: /s/ Stephen M. Christopher
----------------------------
Stephen M. Christopher
President
(Seal)
ATTEST:
/s/ Gary W. Waggoner
- ---------------------
Gary W. Waggoner
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Corporate Benefits II - 5
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities with
Security Life of Denver Insurance Company and on the date indicated.
PRINCIPAL EXECUTIVE OFFICERS:
/s/ Stephen M. Christopher
- ---------------------------
Stephen M. Christopher
President, Chief Executive Officer and Director
/s/ James L .Livingston, Jr.
- ----------------------------
James L. Livingston, Jr.
Executive Vice President and Chief Financial Officer
PRINCIPAL ACCOUNTING OFFICER:
/s/ Shari A. Enger
- ---------------------------
Shari A. Enger
Vice President and Controller
DIRECTORS:
/s/ Thomas F. Conroy
- ---------------------------
Thomas F. Conroy
/s/ Michael W. Cunningham
- ---------------------------
Michael W. Cunningham
/s/ P. Randall Lowery
- ---------------------------
P. Randall Lowery
- --------------------------------------------------------------------------------
Corporate Benefits II - 6
<PAGE>
EXHIBIT INDEX
Exhibit No. Description of Exhibit
1.A(3)(b) Amendment to Broker/Dealer Supervisory and Selling Agreement
for Variable Contracts with Compensation Schedule.
1.A(3)(c) Commission Schedule for Policies.
1.A(5)(a) Corporate Benefits Variable Universal Life Insurance Policy
(Form No. 2505(VUL)-2/00).
1.A(8)(a)(viii) Specimen Participation Agreement among Security Life of Denver
Insurance Company, the GCG Trust and Directed Services, Inc.
1.A(10) Specimen Guaranteed Issue Variable Life Insurance Application
with Corporate Benefits Insert and Guaranteed Issue Binding
Limited Life Insurance Coverage Form (Form Nos. Q2009-11/97
and Q-1112 B-6/98).
6.B Opinion and consent of James L. Livingston, Jr.
7.A Consent of Ernst & Young L.L.P.
B Consent of Sutherland Asbill & Brennan LLP.
- --------------------------------------------------------------------------------
Corporate Benefits II - 7
EXHIBIT 1.a(3)(b)
AMENDMENT TO THE
BROKER-DEALER SUPERVISORY AND SELLING AGREEMENT
FOR VARIABLE CONTRACTS
This Amendment is made by and among ING Security Life of Denver Insurance
Company ("ING Security Life"), ING America Equities, Inc. ("INGAE") and Selling
Broker-Dealer and Agency, collectively known as the Parties.
WHEREAS, the Parties have executed a Broker-Dealer Supervisory and Selling
Agreement for Variable Contracts ("the Agreement") which provides that Selling
Broker-Dealer and Agency will enable and supervise its registered
representatives to solicit and sell the Contracts issued by ING Security Life
and distributed by INGAE.
WHEREAS, the Agreement also provides for certain compensation to be paid to
Selling Broker-Dealer or Agency for the sales of such Contracts, the Agreement
is modified as follows:
1. The Schedule I, "Compensation Schedule to Selling Agreement for ING Security
Life Corporate Benefits Variable Universal Life" is hereby added.
This Amendment is effective ________________, and shall be deemed to be accepted
by Broker-Dealer and Agency by ING Security Life and INGAE by submission of an
application for the Corporate Benefits Variable Universal Life product by
Selling Broker-Dealer or Agency on or after that date.
<PAGE>
SCHEDULE I
COMPENSATION SCHEDULE
TO SELLING AGREEMENT FOR SECURITY LIFE
CORPORATE BENEFITS VARIABLE UNIVERSAL LIFE
This Schedule is an attachment to the ING America Equities, Inc. ("ING America
Equities") Selling Agreement by and among the parties pursuant to paragraph 17
of that Selling Agreement, effective as of ________, 2000, or the date that
Selling Broker-Dealer submits an application for this product, whichever is
later. The provisions of this Schedule shall apply only to ING Security Life
Corporate Benefits Variable Universal Life policies solicited and issued while
this Schedule is in effect. All compensation payable under this Schedule shall
be subject to the terms and conditions contained herein at the time of issue of
the policy by ING Security Life of Denver Insurance Company ("ING Security
Life").
1. Commission Structure:
Commissions are payable on premiums paid in each year up to the target
premium only. No commissions are paid on premium in excess of the target
premium. Any time a new coverage segment is created, premiums allocated to
that segment will be commissionable up to that segment's target premium. The
commission rates as a percent of target premium are given in a table below.
Policy Year of Coverage Commission Rate
Segment
1 10%
2 - 4 8%
5 - 10 2%
11+ 0
Premiums received within 15 days prior to policy anniversary will result in
the agent receiving commissions at the same rate as if the premium was paid
on the anniversary date.
If this product is sold with a maximum ATR coverage, the target premium
could be zero which would result in no commissions payable other than the
annual trail commission described in section 2, below.
2. Trail Commissions: as a percent of the net account value are paid. The trail
commission is calculated monthly based on the net account value at the end
of the prior month. It is paid at the end of the policy year, provided the
policy remains in force at that time and is
<PAGE>
not subject to the grace period provisions. The trail commissions will
continue when the insured lives past age 100 and the continuation of
coverage feature is in force. The annual trail commission rates are given
below.
Annual trail commission rates as a percent of the net account value:
Policy Year Trail Commission Rate
1 - 20 0.20%
21+ 0.10%
3. Riders: The Adjustable Term Insurance Rider has no target premium associated
with it.
4. Commission Calculation: Commissions shall be calculated only on premium
actually received and accepted by ING Security Life. Commissions shall be
paid only on an earned basis. Outstanding loan amounts carried over are not
considered commissionable premium.
5. Premium Allocation: If the Stated Death Benefit has been increased since the
policy date, premiums received are allocated to the coverage segments in the
same proportion that the commission target premium for each segment bears to
the total commission target premium of the policy.
6. Death Benefit Increases: If a premium payment accompanies a request for a
Stated Death Benefit increase or is received while a request is pending, the
payment will be applied to the policy but commissions shall not be payable
until the increase is effective. The commission shall then be payable based
on the premium being allocated among all segments as it would normally and
the new target premium after the increase.
7. Compensation Payments: Compensation on initial premium shall be due to the
Selling Broker-Dealer at the time of the issuance of
the policy and for all other premium payments at the time of the receipt and
acceptance of premium by ING Security Life, except that the amount, if any,
and the time of payment of compensation on stated death benefit increases,
replacements, reissues, changes, conversions, exchanges, term renewals, term
conversions, premiums paid in advance, policies issued on a "guaranteed
issue" basis, policies requiring facultative reinsurance arrangements, and
other special cases and programs shall be governed by ING Security Life's
underwriting and administrative rules then in effect. The Compensation shall
be payable to the Selling Broker-Dealer in accordance with the Schedule I in
effect at the time of issue of the policy.
8. Commission Chargeback: In the event that a policy for which a commission has
been paid is lapsed or surrendered by the Policy Owner or has a reduction of
stated death benefit during the first three policy years, or is returned to
ING Security Life for refund of premium during the Free Look Period as
described in the policy, ING Security Life and
<PAGE>
ING America Equities shall require reimbursement from Selling Broker-Dealer
as shown below.
Policy Year Commission Chargeback
1 10% of first year premium up to target
2 6% of second year premium up to target
3 3% of third year premium up to target
4+ 0%
If a premium payment for which a commission has been paid is refunded by ING
Security Life, a reimbursement of the commission paid on the amount refunded
will be due from the Selling Broker-Dealer. The reimbursement may be
deducted by ING America Equities from the next, or any subsequent,
commission payment to Selling Broker-Dealer.
If the amount to be reimbursed exceeds compensation otherwise due, Selling
Broker-Dealer shall promptly reimburse ING America Equities before the next
commission cycle.
9. Internal Exchanges: Commissions on the exchange of any ING Security Life
policy for Corporate Benefits Variable Universal Life, if any, will be paid
in accordance with the exchange procedures in effect at ING Security Life on
the date the exchange is completed. The commission rates and/or target
premiums may be adjusted in accordance with the rules in effect at the time
of the exchange. If the Representative responsible for the exchange is not
the producer of the original policy, and the original producer is still
active with ING Security Life, no commission will be payable to the
Representative or the Selling Broker-Dealer.
EXHIBIT 1.a(3)(c)
Commission Structure:
Commissions are payable on premiums paid up to the target premium only. No
commissions are paid on premium in excess of the target premium. Any time a new
coverage segment is created, premiums allocated to that segment will be
commissionable up to that segment's target premium. The commission rates as a
percent of target premium are given in a table below.
Policy Year of Coverage Commission Rate Over-Ride Allowance
Segment
1 10% 2%
2 - 4 8% 2%
5 - 10 2% 0
11+ 0 0
Annual trail commission rates as a percent of the net account value:
Policy Year Trail Commission Rate
1 - 20 0.20%
21+ 0.10%
Commission Chargeback:
In the event that a policy for which a commission has been paid is lapsed or
surrendered by the Policy Owner or has a reduction of stated death benefit
during the first three policy years, or is returned for refund of premium during
the Free Look Period as described in the policy, reimbursement is required from
Selling Broker-Dealer as shown below.
Policy Year Commission Chargeback Override Chargeback
1 10% of first year premium up to target 2%
2 6% of second year premium up to target 0%
3 3% of third year premium up to target 0%
4+ 0% 0%
Security Life of Denver EXHIBIT 1.A(5)(a)
Insurance Company
INSURED: JOHN DOE
POLICY DATE: February 1, 2000
POLICY NUMBER: 67000001
WE AGREE TO PAY the death benefit to the beneficiary upon the death of the
insured while this policy is in force.
WE ALSO AGREE to provide the other rights and benefits of the policy. These
agreements are subject to the provisions of the policy.
RIGHT TO EXAMINE PERIOD. You have the right to examine and return this policy
within 10 days after receipt. The policy may be returned by delivering or
mailing it to us at our Customer Service Center or to your registered
representative. Immediately upon return it will be deemed void as of the policy
date. Upon return of the policy to us, we will refund all premiums paid. If this
policy is a replacement policy as defined by state law where this policy is
delivered, you have the right to examine and return this policy within 10 days
after receipt.
/s/ Gary W. Waggoner /s/ Stephen M. Christopher
Secretary President
In this policy "you" and "your" refer to the owner of the policy. "We", "us" and
"our" refer to Security Life of Denver Insurance Company.
This policy is a FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY.
This is a NON-PARTICIPATING policy.
Death benefits and other values provided by this contract, when based on the
investment experience of a separate account, are variable. These values may
increase or decrease based on investment experience and are not guaranteed as to
fixed dollar amount. Death benefits are payable by us upon the death of the
insured. There is no maturity date. Flexible premiums are payable by you during
the lifetime of the insured until the policy anniversary nearest the insured's
100th birth date.
SECURITY LIFE OF DENVER INSURANCE COMPANY
A Stock Company
Customer Service Center, P.O. Box 173888, Denver, Colorado 80217
Toll Free Number: 1(800) 848-6362
Form 2505 (VUL)-2/00
<PAGE>
TABLE OF CONTENTS
SCHEDULE.......................................................................5
DEFINITION OF TERMS............................................................6
INSURANCE COVERAGE PROVISIONS..................................................7
EFFECTIVE DATE OF COVERAGE..............................................7
BASE DEATH BENEFIT......................................................7
CHANGE IN REQUESTED INSURANCE COVERAGE..................................8
Requested Increases in Coverage..................................8
Requested Decreases in Coverage..................................8
Death Benefit Option Changes.....................................8
CONTINUATION OF COVERAGE AFTER AGE 100..................................9
PAYOUT OF PROCEEDS.....................................................10
PREMIUM PROVISIONS............................................................10
INITIAL PREMIUM ALLOCATION.............................................10
SUBSEQUENT PREMIUM ALLOCATION..........................................11
CHANGES TO PREMIUM ALLOCATION..........................................11
SCHEDULED PREMIUMS.....................................................11
UNSCHEDULED PREMIUMS...................................................11
NET PREMIUM............................................................11
PREMIUM LIMITATION.....................................................12
FAILURE TO PAY PREMIUM.................................................12
SEPARATE ACCOUNT PROVISIONS...................................................12
THE SEPARATE ACCOUNT...................................................12
SEPARATE ACCOUNT INVESTMENT OPTIONS....................................12
CHANGES WITHIN THE SEPARATE ACCOUNT....................................13
GENERAL ACCOUNT PROVISIONS....................................................14
THE GENERAL ACCOUNT....................................................14
GUARANTEED INTEREST DIVISION...........................................14
LOAN DIVISION..........................................................14
Form 2505 (VUL)-2/00
Page 2
<PAGE>
TRANSFER PROVISIONS...........................................................14
ACCOUNT VALUE PROVISIONS......................................................14
ACCOUNT VALUES ON THE INVESTMENT DATE..................................15
ACCUMULATION UNIT VALUE................................................15
ACCUMULATION EXPERIENCE FACTOR.........................................15
ACCOUNT VALUE OF THE INVESTMENT OPTIONS OF THE SEPARATE ACCOUNT........16
ACCOUNT VALUE OF THE GUARANTEED INTEREST DIVISION......................16
ACCOUNT VALUE OF THE LOAN DIVISION.....................................17
DEDUCTIONS....................................................................17
MONTHLY DEDUCTION......................................................17
ANNUAL DEDUCTION (Deferred Sales Charge)...............................17
COST OF INSURANCE......................................................18
LOAN PROVISIONS...............................................................18
POLICY LOANS...........................................................18
LOAN INTEREST..........................................................19
LOAN DIVISION..........................................................19
PARTIAL WITHDRAWAL PROVISIONS.................................................19
SURRENDER PROVISIONS..........................................................21
SURRENDER VALUE........................................................21
BASIS OF COMPUTATIONS..................................................21
FULL SURRENDERS........................................................21
GRACE PERIOD, TERMINATION AND REINSTATEMENT PROVISIONS........................21
GRACE PERIOD...........................................................21
TERMINATION............................................................22
REINSTATEMENT..........................................................22
DEFERRAL OF PAYMENT....................................................22
Form 2505 (VUL)-2/00
Page 3
<PAGE>
GENERAL POLICY PROVISIONS.....................................................23
THE POLICY.............................................................23
CONTRACT CHANGES.......................................................23
PROCEDURES.............................................................23
OWNERSHIP..............................................................23
BENEFICIARIES..........................................................24
EXCHANGE RIGHT.........................................................24
COLLATERAL ASSIGNMENT..................................................24
INCONTESTABILITY.......................................................24
MISSTATEMENT OF AGE OR GENDER..........................................24
SUICIDE EXCLUSION......................................................25
PERIODIC REPORTS.......................................................25
ILLUSTRATION OF BENEFITS AND VALUES....................................25
NONPARTICIPATING.......................................................25
CUSTOMER SERVICE CENTER................................................25
PAYOUTS OTHER THAN AS ONE SUM.................................................25
ELECTION...............................................................25
PAYOUT OPTIONS.........................................................26
CHANGE AND WITHDRAWAL..................................................26
EXCESS INTEREST........................................................27
MINIMUM AMOUNTS........................................................27
SUPPLEMENTARY POLICY...................................................27
INCOME PROTECTION......................................................27
DEATH OF PRIMARY PAYEE.................................................27
PAYMENTS OTHER THAN MONTHLY............................................27
SETTLEMENT OPTION TABLES......................................................28
Additional benefits or riders, if any, will be listed in the Schedule. The
additional provisions will be inserted in the policy.
Form 2505 (VUL)-2/00
Page 4
<PAGE>
SCHEDULE
(Schedule Effective Date: February 1, 2000)
POLICY INFORMATION
<TABLE>
<S> <C> <C> <C>
Policy Number 67000001 Initial Stated Death Benefit $100,000.00
Adjustable Term Insurance Death Benefit $ 50,000.00*
Policy Date February 1, 2000 Target Death Benefit $150,000.00**
Insured JOHN DOE Additional Benefits:
Issue Age and Gender 35, Male Adjustable Term Insurance Rider
Death Benefit Option OPTION 1 Scheduled Premium $2,000.00 Annually
</TABLE>
Definition of Life Insurance Test: Cash Value Accumulation Test
Coverage will expire if premiums are insufficient to continue coverage. Coverage
will also be affected by partial withdrawals, policy loans, changes in the
current cost of insurance rates, the actual credited interest rates for the
Guaranteed Interest Division and the investment experience of the Separate
Account.
*This amount is the amount of adjustable term death benefit on the policy date.
This death benefit will vary from time to time, and may depend on your account
value. See the rider and policy for details.
**This amount is the target death benefit on the policy date. It may change at
the beginning of each policy year. See the schedule and rider for details.
CUSTOMER SERVICE CENTER: P.O. Box 173888, Denver, Colorado 80217
Toll Free Number 1(800) 848-6362
Form 2505 (VUL)-2/00
Page 5
<PAGE>
SCHEDULE (Continued)
SEGMENT Benefit Profile
(Schedule Effective Date: February 1, 2000)
<TABLE>
<S> <C> <C> <C> <C>
Description Segment Stated Death Segment Effective Segment Target Segment Premium Class
Benefit Amount Date Premium
Segment #1 $100,000 February 1, 2000 $3,981.00 Select Guaranteed Issue
Non Smoker
</TABLE>
ADDITIONAL BENEFITS:
Adjustable Term Insurance Rider premium class or rating is the same as Segment
#1
A segment is a block of death benefit coverage. The stated death benefit shown
on the schedule page at issue is Segment #1. Additional segments may be added to
the policy after issue to increase the death benefit. Each individual segment
added to the policy has its own cost of insurance charges and expense charges as
shown in the schedule. This is further defined in the Definition of Terms
section of your policy.
Form 2505 (VUL)-2/00
Page 5A
<PAGE>
EXPENSE CHARGES
A. Premium Expense Charge. This charge will equal the sum of a sales charge
plus a tax charge. See Net Premium provision for details.
1. Sales Charge:
<TABLE>
<CAPTION>
Segment Year in Which Premium Segment Premium Received up to Segment Premium Received in Excess
Received Segment Target Premium Of Segment Target Premium
<S> <C> <C>
Segment Year 1 2.0% 0%
Segment Years thereafter 0.5% 0.5%
</TABLE>
2. Federal Deferred Acquisition Cost Tax Charge and Other Charges (Tax
Charge):
<TABLE>
<CAPTION>
Segment Year in Which Premium Segment Premium Received up to Segment Premium Received in Excess
Received Segment Target Premium Of Segment Target Premium
<S> <C> <C>
Segment Year 1 4.0% 0%
Segment Years thereafter 4.0% 4.0%
</TABLE>
We reserve the right to increase or decrease the tax charges due to any
change in tax laws. We further reserve the right to increase or decrease
the tax charge for federal deferred acquisition cost tax due to any change
in cost to us.
B. Monthly Expense Charge: The monthly expense charge will equal the
following:
Charge: $12 per month for the first 12 policy months; and $6
per month thereafter.
Form 2505 (VUL)-2/00
Page 5B
<PAGE>
C. Annual Deduction:
<TABLE>
<CAPTION>
Segment Year in Which Segment Percentage of Segment Premium Percentage of Segment Premium Segment Years of
Premium Received Received up to Received in Excess Deduction
Segment Target Premium* Of Segment Target Premium
<S> <C> <C> <C>
Segment Year 1 2.0% 1% 2 through 8
Segment Year 2 1.75% 0% 3 through 9
Segment Year 3 1.75% 0% 4 through 10
Segment Year 4 1.75% 0% 5 through 11
Segment Year 5 0.50% 0% 6 through 12
Segment Year 6 0.50% 0% 7 through 13
Segment Year 7 0.50% 0% 8 through 14
Segment Year 8 0.50% 0% 9 through 15
Segment Year 9 0.50% 0% 10 through 16
Segment Year 10 0.50% 0% 11 through 17
Segment Years 11+ 0% 0% N/A
</TABLE>
*These are the percentages used to determine the segment annual deduction. This
deduction will be made once each year for 7 years.
ANNUAL MORTALITY AND EXPENSE RISK CHARGE
Annual Mortality and Expense Risk Charge 0.20% per year (0.01667% per month)
Form 2505 (VUL)-2/00
Page 5C
<PAGE>
POLICYHOLDER TRANSACTION CHARGES
Requests for Sales Illustrations: We reserve the right to charge
a $25 fee for each policy illustration over one illustration per
policy year. Partial Withdrawal Service Fee: See below. Other
Policy Transaction Charges: The charges for transfers between
investment options of the Separate Account or between the
Guaranteed Interest Division and the Separate Account investment
options; charges for allocation changes; and charges for other
Separate Account management functions are governed by the
prospectus in effect at the time of the transaction.
POLICY LOANS
Policy Loan Interest Rate: 3.25% per year
Guaranteed Interest Rate Credited To Loan Division: 3.00% per year
Minimum Loan Amount: $100
Maximum Loan Amount: See the Loan
Provisions section.
PARTIAL WITHDRAWALS
Minimum Partial Withdrawal Amount: $100
Maximum Partial Withdrawal Amount: Amount which will leave $500 as the net
account value
Partial Withdrawal Service Fee: $25
Limit On Partial Withdrawals: One per policy year
GUARANTEED INTEREST DIVISION
Guaranteed Interest Rate For Guaranteed Interest Division: 3.00% per year
Form 2505 (VUL)-2/00
Page 5D
<PAGE>
SCHEDULE (Continued)
The policy's base death benefit at any time will be at least equal to the
account value times the appropriate factor from this table.
DEFINITION OF LIFE INSURANCE
CASH VALUE ACCUMULATION TEST
DEATH BENEFIT FACTORS
<TABLE>
<CAPTION>
Insured's Attained Factor Insured's Factor Insured's Factor Insured's Factor
Age Attained Age Attained Age Attained Age
<S> <C> <C> <C> <C> <C> <C> <C>
15 7.564 40 3.439 65 1.692 90 1.151
16 7.335 41 3.330 66 1.654 91 1.141
17 7.118 42 3.226 67 1.617 92 1.131
18 6.911 43 3.125 68 1.583 93 1.120
19 6.713 44 3.028 69 1.550 94 1.109
20 6.521 45 2.936 70 1.518 95 1.097
21 6.334 46 2.846 71 1.488 96 1.083
22 6.150 47 2.761 72 1.459 97 1.069
23 5.969 48 2.678 73 1.432 98 1.054
24 5.791 49 2.599 74 1.406 99 1.040
25 5.615 50 2.522 75 1.382 100 and older 1.000
26 5.441 51 2.449 76 1.359
27 5.271 52 2.378 77 1.338
28 5.104 53 2.311 78 1.318
29 4.940 54 2.246 79 1.299
30 4.781 55 2.184 80 1.281
31 4.626 56 2.125 81 1.264
32 4.476 57 2.068 82 1.248
33 4.330 58 2.014 83 1.233
34 4.188 59 1.962 84 1.218
35 4.052 60 1.912 85 1.205
36 3.920 61 1.864 86 1.193
37 3.793 62 1.818 87 1.181
38 3.670 63 1.774 88 1.171
39 3.553 64 1.732 89 1.160
</TABLE>
Form 2505 (VUL)-2/00
Page 5E
<PAGE>
SCHEDULE (Continued)
TABLE OF GUARANTEED
RATES-Segment #1
Guaranteed Maximum Cost of
Insurance Rates Per $1000 of Net Amount at Risk
(These rates apply to the Base Policy.)
<TABLE>
<CAPTION>
Attained Monthly Cost of Attained Monthly Cost of Attained Monthly Cost of Attained Monthly Cost of
Age Insurance Rate Age Insurance Rate Age Insurance Rate Age Insurance Rate
<S> <C> <C> <C> <C> <C> <C> <C>
0 0.34845 26 0.14419 51 0.60870 76 5.91225
1 0.08917 27 0.14252 52 0.66377 77 6.46824
2 0.08251 28 0.14169 53 0.72636 78 7.04089
3 0.08167 29 0.14252 54 0.79730 79 7.64551
4 0.07917 30 0.14419 55 0.87326 80 8.30507
5 0.07501 31 0.14836 56 0.95591 81 9.03761
6 0.07167 32 0.15252 57 1.04192 82 9.86724
7 0.06667 33 0.15919 58 1.13378 83 10.80381
8 0.06334 34 0.16669 59 1.23235 84 11.82571
9 0.06167 35 0.17586 60 1.34180 85 12.91039
10 0.06084 36 0.18670 61 1.46381 86 14.03509
11 0.06417 37 0.20004 62 1.60173 87 15.18978
12 0.07084 38 0.21505 63 1.75809 88 16.36948
13 0.08251 39 0.23255 64 1.93206 89 17.57781
14 0.09584 40 0.25173 65 2.12283 90 18.82881
15 0.11085 41 0.27424 66 2.32623 91 20.14619
16 0.12585 42 0.29675 67 2.54312 92 21.57655
17 0.13919 43 0.32260 68 2.77350 93 23.20196
18 0.14836 44 0.34929 69 3.02328 94 25.28174
19 0.15502 45 0.37931 70 3.30338 95 28.27411
20 0.15836 46 0.41017 71 3.62140 96 33.10677
21 0.15919 47 0.44353 72 3.98666 97 41.68475
22 0.15752 48 0.47856 73 4.40599 98 58.01259
23 0.15502 49 0.51777 74 4.87280 99 83.33333
24 0.15169 50 0.55948 75 5.37793
25 0.14752
</TABLE>
The rates shown are for a guaranteed issue premium class with no substandard
rating. If the policy has a substandard rating, the maximum cost of insurance
rates will be adjusted using the rating factor shown in the Segment Benefit
Profile of the Schedule. For a rating that is a stated percentage increase, the
maximum cost of insurance rates will be determined by multiplying the rates for
a guaranteed issue premium class shown above by the rating factor shown in the
Segment Benefit Profile of the Schedule. For a rating that is a flat amount per
$1,000, the maximum cost of insurance rates will be determined by adding the
flat amount per $1,000 shown in the Segment Benefit Profile of the Schedule to
the rate per $1,000 for the guaranteed issue premium class shown above. The
rates shown above are based on the 1980 Commissioners' Standard Ordinary
Ultimate Smoker Composite Mortality Table (Male), age nearest birth date.
Form 2505 (VUL)-2/00
Page 5F
<PAGE>
TABLE OF GUARANTEED
RATES-Segment #1
Guaranteed Maximum Cost of
Insurance Rates Per $1000 of Net Amount at Risk
(Adjustable Term Insurance Rider)
<TABLE>
<CAPTION>
Attained Monthly Cost of Attained Monthly Cost of Attained Monthly Cost of Attained Monthly Cost of
Age Insurance Rate Age Insurance Rate Age Insurance Rate Age Insurance Rate
<S> <C> <C> <C> <C> <C> <C> <C>
0 0.43602 26 0.18003 51 0.76141 76 7.40104
1 0.11168 27 0.17837 52 0.82985 77 8.09839
2 0.10334 28 0.17753 53 0.90832 78 8.81706
3 0.10251 29 0.17837 54 0.99683 79 9.57498
4 0.09918 30 0.18003 55 1.09202 80 10.40294
5 0.09418 31 0.18587 56 1.19559 81 11.32260
6 0.09001 32 0.19087 57 1.30253 82 12.36434
7 0.08334 33 0.19921 58 1.41784 83 13.54176
8 0.07917 34 0.20838 59 1.54070 84 14.82576
9 0.07751 35 0.22005 60 1.67781 85 16.19045
10 0.07584 36 0.23339 61 1.83085 86 17.60542
11 0.08001 37 0.25006 62 2.00317 87 19.05982
12 0.08834 38 0.26924 63 2.19899 88 20.54615
13 0.10334 39 0.29092 64 2.41666 89 22.06903
14 0.12001 40 0.31510 65 2.65537 90 23.64710
15 0.13835 41 0.34262 66 2.90927 91 25.31065
16 0.15752 42 0.37097 67 3.18092 92 27.11674
17 0.17420 43 0.40350 68 3.46950 93 29.17188
18 0.18587 44 0.43686 69 3.78175 94 31.80363
19 0.19420 45 0.47439 70 4.13284 95 35.59424
20 0.19837 46 0.51276 71 4.53127 96 41.72906
21 0.19921 47 0.55447 72 4.98809 97 52.65466
22 0.19671 48 0.59869 73 5.51357 98 73.58341
23 0.19420 49 0.64709 74 6.09863 99 83.33333
24 0.19004 50 0.69966 75 6.73168
25 0.18420
</TABLE>
The rates shown are for a guaranteed issue premium class with no substandard
rating. If the policy has a substandard rating, the maximum cost of insurance
rates will be adjusted using the rating factor shown in the Segment Benefit
Profile of the Schedule. For a rating that is a stated percentage increase, the
maximum cost of insurance rates will be determined by multiplying the rates for
a guaranteed issue premium class shown above by the rating factor shown in the
Segment Benefit Profile of the Schedule. For a rating that is a flat amount per
$1,000, the maximum cost of insurance rates will be determined by adding the
flat amount per $1,000 shown in the Segment Benefit Profile of the Schedule to
the rate per $1,000 for the guaranteed issue premium class shown above. The
rates shown above are based on the 1980 Commissioners' Standard Ordinary
Ultimate Smoker Composite Mortality Table (Male), age nearest birth date.
Form 2505 (VUL)-2/00
Page 5G
<PAGE>
DEFINITION OF TERMS
Account value - The sum of the amounts allocated to the investment options of
the Separate Account and to the Guaranteed Interest Division, as well as any
amount set aside in the Loan Division to secure a policy loan.
Accumulation unit - A unit of measurement used to calculate the account value in
each investment option of the Separate Account.
Accumulation unit value - The value of an accumulation unit of each investment
option of the Separate Account. The accumulation unit value is determined as of
each valuation date.
Age - The policy is issued at the age shown in the Schedule. Each issue age is
the age nearest birthday on the policy date.
Attained age - The insured's attained age is the issue age of the insured as
shown in the Schedule, increased by the number of completed policy years.
Base death benefit - The base death benefit is defined in the Base Death Benefit
provision of the policy.
Customer Service Center - Our administrative office whose address is P. O. Box
173888, Denver, CO 80217.
General Account - The account that contains all of our assets other than those
held in the Separate Account or our other separate accounts.
Guaranteed Interest Division - Part of our General Account to which a portion of
the account value may be allocated and which provides guarantees of principal
and interest.
Initial period - The initial period ends on the earlier of: a) the date this
policy was delivered to you plus the Right to Examine Period, so long as we
receive notice of the delivery date at our Customer Service Center before the
date defined in (b), or (b) the date this policy is mailed from our Customer
Service Center plus five days plus the Right to Examine Period.
Form 2505 (VUL)-2/00
Page 6
<PAGE>
Investment date -The first date we apply your net premium payment to your
policy. We will allocate the initial net premium to your policy at the end of
the valuation period during which the latest of the date on which the following
requirements is satisfied for policy issuance:
1) we receive the amount of premium required for coverage to begin under the
policy; 2) we have approved the policy for issue, and 3) all issue requirements
have been met and received in our Customer Service Center.
Investment options of the Separate Account - The investment options available,
each of which invests in shares of one of the portfolios.
Loan Division - Part of our General Account in which funds are set aside to
secure any outstanding policy loan and accrued loan interest when due.
Monthly processing date - The date each month on which the monthly deductions
from the account value are due. The first monthly processing date will be the
policy date or the investment date, if later. Subsequent monthly processing
dates will be the same date as the policy date each month thereafter. If that
date is not a valuation date, monthly processing date will be the next
calculated accumulation unit value.
Net account value - The amount of the account value minus any policy loan and
accrued loan interest. This is the same as your surrender value.
Net premium - The net premium equals the premium received minus the premium
expense charges shown in the Schedule. These charges are deducted from the
premium before the premium is applied to your account value.
Partial withdrawal - The withdrawal of a portion of your net account value from
the policy. The partial withdrawal may reduce the amount of base death benefit
in force.
Policy loan - The sum of amounts you have borrowed from your policy, increased
by any policy loan interest capitalized when due, and reduced by any policy loan
repayments.
Right to Examine Period - The number of days after delivery during which you
have a right to examine your policy.
Scheduled premium - The premium amount that you specify on the application as
the amount you intend to pay at fixed intervals over a specified period of time.
Premiums may be paid on a monthly, quarterly, semiannual, or annual basis, as
you determine. You need not pay the scheduled premium and you may change it at
any time. Also, within limits, you may pay less or more than the scheduled
premium.
Segment - The stated death benefit shown on the Segment Benefit Profile of the
Schedule is the initial segment, or Segment #1. Each increase in the stated
death benefit (other than due to an option change) is a new segment. Each new
segment will be shown separately on the Segment Benefit Profile of the Schedule.
The first year for a segment begins on the effective date of the segment and
ends one year later. Each subsequent year begins at the end of the prior segment
year. Each new segment may be subject to a new sales charge, new annual
deduction, if any, new cost of insurance charges and new incontestability and
suicide exclusion periods.
Segment premium - The actual premium received allocated to existing segments.
Premium is allocated in the same proportion that the segment target premium
bears to the sum of all segment target premium. If there is only one segment
target premium, the entire premium is allocated to the segment. Segment target
premium is shown in the Schedule. As each segment has unique segment years, each
segment premium is associated with a segment year.
Form 2505 (VUL)-2/00
Page 6a
<PAGE>
Stated death benefit -The sum of the segments under the policy. The stated death
benefit changes when there is an increase or a decrease or when a transaction on
the policy causes it to change (for example, a partial withdrawal under an
Option 1 base death benefit may cause the stated death benefit to change).
Surrender value - The amount of the account value minus any policy loan and
accrued loan interest. This is the same amount as the net account value.
Target death benefit - The target death benefit for your policy is defined in
the Adjustable Term Insurance Rider, if any, attached to the policy.
Valuation date - Each date as of which the net asset value of the shares of the
portfolios and unit values of the variable investment options are determined.
Except for days that a variable investment option's corresponding portfolio does
not value its shares, a valuation date is any day: (a) The New York Stock
Exchange ("NYSE") is open for trading and on which Security Life's Customer
Service Center is open for business; or (b) as may be required by law.
Valuation period - The period which begins at 4:00 p.m. Eastern Time on a
valuation date and ends at 4:00 p.m. Eastern Time on the next succeeding
valuation date.
INSURANCE COVERAGE PROVISIONS
EFFECTIVE DATE
The policy date shown in the Schedule is the effective date for all coverage
provided in the original application. The policy date is the date from which we
measure policy years and determine the monthly processing date. The first
monthly processing date is the investment date. Future monthly processing dates
are the same calendar day of each month as the policy date unless this is not a
valuation date in which case the monthly processing date occurs on the next
valuation date. A policy anniversary occurs each year on the same month and day
as the policy date unless this is not a valuation date in which case the policy
anniversary occurs on the next valuation date. The effective date for new
segments and additional benefits is shown in the Schedule.
BASE DEATH BENEFIT
The base death benefit will be, at any time, determined as follows:
Option 1: Under Option 1, the base death benefit is the greater of:
(a) The stated death benefit; or
(b) The account value multiplied by the appropriate factor from the
Death Benefit Factors shown in the Schedule.
Option 2: Under Option 2, the base death benefit is the greater of:
(a) The stated death benefit plus the account value, or
(b) The account value multiplied by the appropriate factor from the
Death Benefit Factors shown in the Schedule.
Option 3: Under Option 3, the base death benefit is the greater of:
(a) The stated death benefit plus premiums received less partial
withdrawals, or
(b) The account value multiplied by the appropriate factor from the
Death Benefit Factors shown in the Schedule.
The stated death benefit and the death benefit option are shown in the Schedule.
This policy is designed to qualify as a life insurance contract under the
Internal Revenue Code. All terms and provisions of the policy shall be construed
in a manner consistent with that design. The base death benefit in force at any
time shall not be less than the amount of insurance necessary to achieve such
qualification under the applicable provisions of the Internal Revenue Code in
existence at the time the policy is issued. We reserve the right to amend the
policy or adjust the amount of insurance when required. We will send you a copy
of any policy amendment.
Form 2505 (VUL)-2/00
Page 7
<PAGE>
CHANGE IN REQUESTED INSURANCE COVERAGE
You may request that the insurance coverage be increased or decreased. Decreases
are not allowed before the first policy anniversary. The change in coverage may
not be for an amount less than $1,000. The effective date of the change will be
the monthly processing date immediately following the date your written
application is approved by us. After any change to the stated death benefit, you
will receive an amended Schedule reflecting the change, the benefit under any
riders, if applicable, the guaranteed cost of insurance rates, and the new
target premium.
Requested Increases in Coverage
Subject to our limits, you may request an increase in the stated death benefit
through attained age 75. An increase will become effective as of the monthly
processing date immediately following the date your written application is
approved by us. You must provide evidence satisfactory to us that the insured is
insurable according to our normal rules of underwriting for the applicable
premium class for this type of policy. This evidence will include an application
and may include required medical information. An increase will consist of a new
segment of stated death benefit . Each new segment will result in a new sales
charge which will be deducted from the premium allocated to the new segment. The
new segment may also be subject to new monthly expense charges, new annual
deductions, new cost of insurance charges and new incontestability and suicide
exclusion periods.
Requested Decreases in Coverage
After the first policy anniversary, you may request a decrease in the stated
death benefit. We will limit the decrease such that, immediately after the
requested decrease:
(a) If there is no adjustable term insurance on the policy, the
stated death benefit is at least $50,000.
(b) If there is adjustable term insurance on the policy, the target
death benefit is at least $50,000.
A decrease will be effective as of the monthly processing date immediately
following the date your written application is approved by us. A decrease will
first reduce Adjustable Term Insurance Rider coverage, if attached to your
policy, and will then reduce each of the stated death benefit segments in the
same proportion as the stated death benefit is reduced.
Death Benefit Option Changes
Beginning with the first monthly processing date and ending with the policy
anniversary nearest the insured's 100th birth date, you may request to change
the death benefit option. This change will be effective as of the monthly
processing date next following approval. A death benefit option change applies
to the entire stated death benefit. We may not allow any change if it would
reduce the target death benefit below the minimum we require to issue this
policy at the time of reduction. Death benefit option changes from Option 1 to
Option 3, from Option 2 to Option 3 and from Option 3 to Option 2 are not
allowed. After the effective date of the change, the stated death benefit will
be changed according to the following table:
Form 2505 (VUL)-2/00
Page 8
<PAGE>
OPTION CHANGE STATED DEATH BENEFIT FOLLOWING
FROM TO THE OPTION CHANGE EQUALS:
Option 1 Option 2 Stated death benefit prior to such change minus your
account value as of the effective date of the
change.
Option 2 Option 1 Stated death benefit prior to such change plus your
account value as of the effective date of the
change.
Option 3 Option 1 Stated death benefit prior to such change plus the
sum of all the premiums paid minus all partial
withdrawals taken prior to the effective date of the
change.
To determine the segment stated death benefit after an option change, your
account value will be allocated to each segment in the same proportion that
segment bears to the stated death benefit as of the effective date of the
change.
CONTINUATION OF COVERAGE AFTER AGE 100
If the policy is in force on the policy anniversary nearest the insured's 100th
birth date, the policy will continue pursuant to the terms of the policy. On
this date, the following will occur:
(a) The target death benefit on the policy anniversary nearest the
insured's 100th birth date will then become the stated death benefit
for the policy and any remaining death benefit in force under the
Adjustable Term Insurance Rider will terminate.
(b) All other riders, if any, attached to the policy also will terminate.
(c) The portion of your account value invested in the investment options
of the Separate Account will be transferred into the Guaranteed
Interest Division and no further investment in the Separate Account
will be allowed.
(d) If the death benefit option in force on the policy is Option 2 or
Option 3, the policy will be converted to death benefit Option 1 in
accordance with the procedures outlined in the Death Benefit Option
Changes provision of the policy. No further changes will be allowed to
the death benefit option.
After the policy anniversary nearest the insured's 100th birth date, no further
premiums will be accepted and no monthly or annual deductions will be made.
However, a one-time administrative fee of $200 will be charged against the
policy's account value. We will continue to credit interest to the account value
in the Guaranteed Interest Division. Policy loans and withdrawals continue to be
available. Any existing policy loan will continue. Policy loan interest will
continue to accrue. Payments on policy loans and policy loan interest will be
accepted. The policy will enter the 61-day grace period if the surrender value
is zero or less.
If you do not want coverage to continue past the policy anniversary nearest the
insured's 100th birth date, the policy may be surrendered at that time, or
earlier.
Form 2505 (VUL)-2/00
Page 9
<PAGE>
PAYOUT OF PROCEEDS
Proceeds refer to the amount we will pay:
a) upon surrender of the policy; or
b) upon the death of the insured.
The proceeds upon surrender of this policy will be the net account value. The
amount of proceeds payable upon the death of the insured will be the base death
benefit in effect on the date of death, plus any amounts payable from any
additional benefits provided by rider, minus any outstanding policy loan
including accrued but unpaid interest, minus any unpaid monthly deductions
incurred prior to the date of death. The calculation of the death proceeds will
be computed as of the date of the insured's death.
We will determine the amount of proceeds payable upon the death of the insured
when we have received due proof of death and any other information which is
necessary to process the claim. Any proceeds we pay are subject to adjustments
as provided in the Misstatement of Age, Suicide Exclusion and Incontestability
provisions.
We will pay proceeds in one sum unless you request an alternate form of payment.
There are many possible methods of payment. The available payout options are
described in the Payouts Other Than As One Sum provision. Contact us or your
registered representative for additional information. Interest will be paid on
the one sum death proceeds from the date of death to the date of payment, or
until a payout option is selected. Interest will be at the rate we declare, or
at any higher rate required by law.
PREMIUM PROVISIONS
INITIAL PREMIUM ALLOCATION
If the initial period has not ended on the investment date, net premium amounts
designated for allocation to investment option of the Separate Account will be
allocated on the investment date to the Money Market Division and any net
premium amount designated for allocation to the Guaranteed Interest Division
will be allocated to that division. Any additional net premium amounts received
after the investment date and before the end of the initial period will be
allocated in the same manner as the initial net premium, at the end of the
valuation period during which we receive the premium at our Customer Service
Center. On the valuation date immediately following the end of the initial
period, the balance of the amount in the Money Market Division will be
transferred to other investment options of the Separate Account according to
your allocations instructions. The amounts allocated to the Guaranteed Interest
Division will remain in that division.
If the initial period has ended on the investment date, initial net premium
amounts will be allocated on the investment date to investment options of the
Separate Account and/or to the Guaranteed Interest Division in accordance with
your allocation instructions.
Form 2505 (VUL)-2/00
Page 10
<PAGE>
SUBSEQUENT PREMIUM ALLOCATIONS
After the initial premium allocation, all future scheduled and unscheduled
premiums will be allocated to the investment options of the Separate Account and
to the Guaranteed Interest Division in accordance with your allocation
instructions. This allocation will occur at the end of the valuation period
during which we receive the premium at our Customer Service Center.
CHANGES TO PREMIUM ALLOCATIONS
You may change your premium allocation in accordance with instructions included
in your annual policy prospectus. If the change causes a premium allocation
charge to be incurred according to the schedule, we will deduct a charge from
the investment options of the Separate Account and from the Guaranteed Interest
Division as described in the prospectus in effect at the time of the
transaction.
SCHEDULED PREMIUMS
The scheduled premium as shown in the Schedule may be paid while this policy is
in force prior to the policy anniversary nearest the insured's 100th birth date.
You may increase or decrease the amount of the scheduled premium, subject to
limits we may set and provisions in the Premium Limitation section. Under
conditions provided in the Grace Period provision, you may be required to make
premium payments to keep the policy in force. You may pay premiums on a monthly
basis through an automated payment facility. All payment modes are subject to
our minimum requirements for the payment mode selected.
UNSCHEDULED PREMIUMS
You may make unscheduled premium payments at any time the policy is in force
prior to the policy anniversary nearest the insured's 100th birth date, subject
to the Premium Limitation section. Unless you tell us otherwise, these premium
payments will first be applied to reduce or pay off any existing policy loan
and, as such, premium expense charges will not be deducted.
NET PREMIUM
The net premium equals the premium paid minus the premium expense charge shown
in the Schedule. The premium expense charge is the sales charge plus the tax
charge.
Each time we receive a premium we determine the sales charge by multiplying the
applicable sales charge percentage times the segment premium. There is a
different sales charge percentage for the segment year in which the premium is
received, for segment premium above the segment target premium and for segment
premium below the segment target premium.
Each time we receive a premium we determine the tax charge by multiplying the
applicable tax charge percentage times the segment premium. There is a different
tax charge percentage for the segment year in which the premium is received, for
segment premium above the segment target premium and for segment premium below
the segment target premium.
Form 2505 (VUL)-2/00
Page 11
<PAGE>
The Schedule shows: (1) the target premium for each segment; (2) the percentage
sales charges; and (3) the tax percentage. Segment premium is defined in the
Definition of Terms section of your policy.
PREMIUM LIMITATION
We will refund any premium that causes your policy not to qualify as a life
insurance policy under the Internal Revenue Code. No premium may be paid after
the death of the insured. No premium may be paid after the policy anniversary
nearest the insured's 100th birth date.
FAILURE TO PAY PREMIUM
If you stop paying premiums prior to the policy anniversary nearest the
insured's 100th birth date, your coverage may lapse. See your Grace Period
provision for details.
SEPARATE ACCOUNT PROVISIONS
THE SEPARATE ACCOUNT
The Separate Account is an account established by us, pursuant to the laws of
the State of Colorado, to separate the assets funding the benefits for the class
of policies to which this policy belongs from other assets of Security Life of
Denver Insurance Company.
The Separate Account is registered as a unit investment trust under the
Investment Company Act of 1940. All income, gains and losses, whether or not
realized, from assets allocated to the Separate Account are credited to or
charged against the Separate Account without regard to income, gains or losses
of our General Account. The assets of the Separate Account are our property but
are separate from our General Account and our other Separate Accounts. That
portion of the assets of the Separate Account which is equal to the reserves and
other policy liabilities with respect to the Separate Account is not chargeable
with liabilities arising out of any other business we may conduct or subject to
creditor claims against us.
SEPARATE ACCOUNT INVESTMENT OPTIONS
The Separate Account is divided into investment options, each of which invests
in a fund portfolio designed to meet the objectives of the investment option.
The current eligible investment options are shown in your annual policy
prospectus. We may, from time to time, add additional investment options. If we
do, you may be permitted to select from these other investment options subject
to the terms and conditions we may impose on those allocations.
Form 2505 (VUL)-2/00
Page 12
<PAGE>
We reserve the right to limit the number of options in which you may invest over
the life of the policy. This limit, if any, will be listed in the updated policy
prospectus provided to you each year.
CHANGES WITHIN THE SEPARATE ACCOUNT
When permitted by law, and subject to any required notice to you and approval of
the Securities and Exchange Commission ("SEC"), state regulatory authorities or
policy owners, we may from time to time make the following changes to the
Separate Account:
o Make additional investment options available. These investment options
will invest in portfolios we find suitable for the policy.
o Eliminate investment options from the Separate Account or combine 2 or
more investment options.
o Substitute a new portfolio for the portfolio in which an investment
option invests. A substitution may become necessary if, in our
judgment, a portfolio no longer suits the purposes of the policy. This
may happen due to a change in laws or regulations, or a change in a
portfolio's investment objectives or restrictions. This may also
happen if the portfolio is no longer available for investment, or for
some other reason, such as a declining asset base.
o Transfer assets of the Separate Account, which we determine to be
associated with the class of policies to which your policy belongs, to
another Separate Account.
o Withdraw the Separate Account from registration under the Investment
Company Act of 1940.
o Operate the Separate Account as a management investment company under
the Investment Company Act of 1940.
o Invest one or more investment options in a mutual fund other than, or
in addition to, the portfolios.
o Discontinue the sale of policies.
o Terminate any employer or plan trustee agreement with us pursuant to
its terms.
o Restrict or eliminate any voting rights as to the Separate Account.
o Make any changes required by the Investment Company Act of 1940 or the
rules or regulations thereunder.
Form 2505 (VUL)-2/00
Page 13
<PAGE>
GENERAL ACCOUNT PROVISIONS
THE GENERAL ACCOUNT
The General Account holds all of our assets other than those held in the
Separate Account or our other separate accounts. The Guaranteed Interest
Division is a part of our General Account.
GUARANTEED INTEREST DIVISION
The Guaranteed Interest Division is another investment option to which you may
allocate premiums or make transfers. The account value of the Guaranteed
Interest Division is equal to amounts allocated to this division plus any earned
interest minus deductions taken from this division. Interest is credited at the
guaranteed rate shown in the schedule or may be credited at a higher rate. Any
higher rate is guaranteed to be in effect for at least a 12-month period.
LOAN DIVISION
The Loan Division is the account that is set aside to secure the policy loan, if
any. See the Loan Provisions section for information.
TRANSFER PROVISIONS
After the initial premium allocation and until the policy anniversary nearest
the insured's 100th birth date, your account value in each division may be
transferred to any other investment option of the Separate Account or to the
Guaranteed Interest Division upon your request. One transfer from the Guaranteed
Interest Division into the investment options of the Separate Account may be
made during the first 30 days of each policy year. Additional limitations,
requirements and charges for transfers will be listed in and governed by your
annual policy prospectus in effect at the time of the transfer. We reserve the
right to modify these limitations, requirements and charges from time to time.
On the policy anniversary nearest the insured's 100th birth date, your account
value in each investment option of the Separate Account will be transferred into
the Guaranteed Interest Division and no further transfers will be allowed.
ACCOUNT VALUE PROVISIONS
The account value is the sum of the current amounts allocated to the investment
options of the Separate Account and to the Guaranteed Interest Division plus
your balance in the Loan Division.
Form 2505 (VUL)-2/00
Page 14
<PAGE>
The account value is based on the premiums paid, policy and rider charges
assessed, loans and withdrawals taken, monthly deductions, premium expense
charges, transaction charges, annual deductions, if any, and the investment
experience or credited interest of the investment options or divisions to which
your account value is allocated.
Your net account value is equal to your account value minus any policy loan and
accrued but unpaid loan interest.
ACCOUNT VALUES ON THE INVESTMENT DATE
The account value of each investment option of the Separate Account and the
account value of the Guaranteed Interest Division as of the investment date is
equal to:
a) The allocation to each investment option of the Separate Account and
to the Guaranteed Interest Division of the first net premium received;
minus
b) The portion of any monthly deductions allocated to each investment
option of the Separate Account and to the Guaranteed Interest Division
due on the investment date.
ACCUMULATION UNIT VALUE
The investment experience of an investment option of the Separate Account is
determined as of each valuation date. We use an accumulation unit value to
measure the experience of each of the Separate Account investment options during
a valuation period. We generally set the accumulation unit value at $10 when
each investment option is opened. The accumulation unit value for a valuation
date equals the accumulation unit value for the preceding valuation date
multiplied by the accumulation experience factor defined below for the valuation
period ending on the valuation date.
The number of units for a given transaction related to an investment option of
the Separate Account as of a valuation date is determined by dividing the dollar
value of that transaction by that division's accumulation unit value for that
date.
ACCUMULATION EXPERIENCE FACTOR
For each investment option of the Separate Account, the accumulation experience
factor reflects the investment experience of the portfolio in which that option
invests and the charges assessed against that investment option for a valuation
period. The accumulation experience factor is calculated as follows:
a) The net asset value of the portfolio in which that investment option
invests as of the end of the
current valuation period; plus
b) The amount of any dividend or capital gains distribution declared and
reinvested in the portfolio in which that investment option invests
during the current valuation period; minus
c) A charge for taxes, if any.
d) The result of (a), (b) and (c) is then divided by the net asset value
of the portfolio in which that investment option invests as of the end
of the preceding valuation period.
Form 2505 (VUL)-2/00
Page 15
<PAGE>
ACCOUNT VALUE OF THE INVESTMENT OPTIONS OF THE SEPARATE ACCOUNT
On subsequent valuation dates after the investment date, your account value of
each investment option of the Separate Account is calculated as follows:
a) The number of accumulation units in an investment option as of the
beginning of the current valuation period multiplied by that option's
accumulation unit value for the current valuation period; plus
b) Any additional net premiums allocated to that investment option during
the current valuation period; plus
c) Any account value transferred to or minus any account value
transferred from the Separate Account during the current valuation
period (including the applicable portion of any transfer fee); minus
d) Any partial withdrawals allocated to the investment option and any
applicable withdrawal service fees which are allocated to the Separate
Account during the current valuation period; plus
e) Any amounts released from the Loan Division as a result of a loan or
loan interest payment, or minus amounts transferred to the Loan
Division as a result of any loans which are allocated to the
investment options of the Separate Account during the current
valuation period; minus
f) The portion of the monthly deduction allocated to the investment
options of the Separate Account, if a monthly processing date occurs
during the current valuation period; minus
g) The portion of the annual deduction, if any, as of the first monthly
processing date for a segment year allocated to that investment option
during the current valuation period.
ACCOUNT VALUE OF THE GUARANTEED INTEREST DIVISION
On valuation dates after the investment date, your account value of the
Guaranteed Interest Division is calculated as follows:
a) The account value of the Guaranteed Interest Division at the end of
the preceding valuation period plus interest at the declared rate
credited during the current valuation period; plus
b) Any additional net premiums allocated to the Guaranteed Interest
Division plus interest credited to these premiums during the current
valuation period; plus
c) Any account value transferred to or minus any account value
transferred from the Guaranteed Interest Division during the current
valuation period (including the applicable portion of any transfer
fee); minus
d) Any partial withdrawals taken and any applicable withdrawal service
fees which are allocated to the Guaranteed Interest Division during
the current valuation period; plus
e) Any amounts released from the Loan Division as a result of a loan or
loan interest payment, or minus amounts transferred to the Loan
Division as a result of any loans which are allocated to the
Guaranteed Interest Division during the current valuation period;
minus
f) The portion of the monthly deduction allocated to the Guaranteed
Interest Division, if a monthly processing date occurs during the
current valuation period; minus
g) The portion of the annual deduction, if any, as of the first monthly
processing date for a segment year allocated to the Guaranteed
Interest Division during the valuation period.
Form 2505 (VUL)-2/00
Page 16
<PAGE>
ACCOUNT VALUE OF THE LOAN DIVISION
On valuation dates after the investment date, your account value of the Loan
Division is equal to:
a) The account value of the Loan Division on the prior valuation date;
plus
b) Any interest credited to the Loan Division during the valuation
period; plus
c) An amount equal to any additional loans since the prior valuation
date; minus
d) Any loan repayments, including payment of loan interest; plus
e) The amount of accrued loan interest if the valuation date is a policy
anniversary; minus
f) The amount of interest credited to the Loan Division during the year
if the valuation date is a policy anniversary.
On policy anniversaries, any amount of interest credited to the Loan Division
during the year is transferred from the Loan Division to the Separate Account
and Guaranteed Interest Division according to your premium allocation then in
effect.
DEDUCTIONS
MONTHLY DEDUCTIONS
The monthly deduction is equal to:
a) The cost of insurance charges for this policy; plus
b) The monthly charges for any other additional benefits provided by
riders in force under the policy; plus
c) The monthly expense charges shown in the Schedule; plus
d) The monthly equivalent of the annual mortality and expense risk charge
shown in the Schedule; plus
e) The policyholder transaction charges as described in the Schedule as
applicable; plus
The monthly deductions are allocated to the divisions of the Separate Account
and Guaranteed Interest Division as described in the prospectus in effect at the
time of the transaction. The monthly deductions are taken from your account
value as of the monthly processing date. These deductions will display in
periodic reports that we send you at least once per policy year. After the
policy anniversary nearest the insured's 100th birth date no further monthly
deductions will be made, except policy transaction charges incurred after this
date.
ANNUAL DEDUCTION (Deferred Sales Charge)
At the end of each of the first ten segment years, we calculate a segment annual
deduction for each segment by multiplying the applicable percentage from the
Schedule times the segment premium received in the segment year. There is a
different annual percentage for the segment year in which the premium is
received, for the segment premium below the segment target premium and for the
segment premium above the segment target premium. The segment annual deduction
is deducted from the account value at the beginning of each of the next seven
segment years. The first deduction is in the policy month immediately following
the calculation. As the calculation is performed for each segment year in which
a premium is received, the total annual deduction for a segment is the sum of up
to seven segment annual deductions. Segment premium is defined in the Definition
of Terms section of your policy.
Form 2505 (VUL)-2/00
Page 17
<PAGE>
The annual deduction is allocated to the investment options of the Separate
Account and to the Guaranteed Interest Division as described in the prospectus
in effect at the time of the transaction. The annual deduction will display in
periodic reports that we send you at least once per policy year. After the
policy anniversary nearest the insured's 100th birth date no further annual
deductions will be made.
COST OF INSURANCE
The cost of insurance for the policy is the sum of the cost of insurance for all
segments. A segment's cost of insurance is the cost of insurance rate for the
premium class for the segment multiplied by the net amount at risk allocated to
the segment. It is determined on a monthly basis.
The net amount at risk is (a) minus (b) where:
a) Is the base death benefit for all segments as of the monthly
processing date after the monthly deductions (other than cost of
insurance charges for the base death benefit, and any Adjustable Term
Insurance Rider), divided by the result of 1 plus the monthly
equivalent of the guaranteed interest rate for the Guaranteed Interest
Division as shown in the Schedule; and
b) Is your account value as of the monthly processing date after the
monthly deductions (other than the cost of insurance charges for the
base death benefit and any Adjustable Term Insurance Rider).
The net amount at risk will be allocated to a segment in the same proportion as
that segment's stated death benefit bears to the sum of the stated death
benefits for all segments.
The cost of insurance rate for each segment will be determined by us from time
to time. Different rates will apply to each segment. They will be based on the
age and gender of the insured as of the effective date of segment coverage, the
duration since the coverage began and the segment premium class. Any change in
rates will apply to all individuals of the same premium class and whose policies
have been in effect for the same length of time. The rates will never exceed
those rates shown in the Table of Guaranteed Rates for the segment as adjusted
for any rating. These tables are in the Schedule.
LOAN PROVISIONS
POLICY LOANS
You may obtain a policy loan on or after the first monthly processing date. The
maximum amount you may borrow at any time equals the net account value on the
date of the loan request less all monthly deductions to the next policy
anniversary, or 13 monthly deductions if you take a loan within the 30 day
period before your next policy anniversary. The policy loan is a first lien on
your policy. The minimum amount you may borrow is shown in the Schedule. The
outstanding policy loan amount is equal to the loan amount as of the beginning
of the policy year plus new loans and minus loan repayments, plus accrued
interest.
Form 2505 (VUL)-2/00
Page 18
<PAGE>
LOAN INTEREST
The annual policy loan interest rate is shown in the Schedule. If a loan is
made, interest is due and payable at the end of the policy year. Thereafter,
interest on the loan amount is due annually at the end of each policy year until
the loan is repaid. If interest is not paid when due, it is added to the policy
loan.
If the policy loan amount and any accrued interest equals or exceeds the account
value, a premium sufficient to keep this policy in force must be paid as
provided in the Grace Period provision.
LOAN DIVISION
When a policy loan is taken or when interest is not paid in cash when due, an
amount equal to the loan or unpaid loan interest respectively, is transferred
from the investment options of the Separate Account and the Guaranteed Interest
Division to the Loan Division to secure the loan. This amount will be deducted
from the investment options of the Separate Account and the Guaranteed Interest
Division in the same proportion that your account value in each investment
option and in the Guaranteed Interest Division bears to your net account value
as of the date the transfer is effective unless otherwise specified in your
instructions to us. Your account value in the Loan Division will be credited
with interest at the interest rate for the Loan Division shown in the Schedule.
When a loan repayment is made, an amount equal to the repayment is transferred
from the Loan Division to the Guaranteed Interest Division and the investment
options of the Separate Account in the same proportion as your current premium
allocation unless you request a different allocation in writing.
PARTIAL WITHDRAWAL PROVISIONS
You may apply for a partial withdrawal from your account value on any monthly
processing date after the first policy anniversary by contacting us at our
Customer Service Center. The minimum and maximum partial withdrawal amounts are
shown in the Schedule. When a partial withdrawal is made, the amount of the
withdrawal plus a service fee is deducted from your account value. The amount of
the service fee is shown in the Schedule. We limit the number of partial
withdrawals in a policy year. This number is shown in the Schedule.
The stated death benefit is reduced by the amount of the partial withdrawal
unless one of the following exceptions applies.
The stated death benefit is not reduced by a partial withdrawal taken when
the base death benefit has been increased to qualify your policy as life
insurance under the Internal Revenue Code and the amount withdrawn is not
greater than that which reduces your account value to the level which no
longer requires the base death benefit to be increased for Internal
Revenue Code purposes.
Form 2505 (VUL)-2/00
Page 19
<PAGE>
For a policy under an Option 1 death benefit, the stated death benefit is not
reduced by a partial withdrawal:
a) If no more than 15 years have elapsed since the policy date;
b) If the insured is not yet age 81; and
c) If the partial withdrawal taken is less than the greater of 10% of
your account value or 5% of the stated death benefit, calculated
immediately before the partial withdrawal. Any additional amount
withdrawn reduces your stated death benefit by that additional amount.
For a policy under an Option 2 death benefit, a partial withdrawal does not
reduce your stated death benefit.
For a policy under an Option 3 death benefit, a partial withdrawal reduces your
stated death benefit by any amount of the partial withdrawal in excess of
premiums paid, less prior withdrawals, to the date of the partial withdrawal.
Any reduction in death benefit or account value will occur as of the date the
partial withdrawal occurs.
We will limit the amount of the partial withdrawal such that, immediately after
the requested withdrawal:
a) If there is no adjustable term insurance on the policy, the stated
death benefit is at least $50,000.
b) If there is adjustable term insurance on the policy, the target death
benefit is at least $50,000.
You may specify how much of the withdrawal you wish taken from each investment
option of the Separate Account or from the Guaranteed Interest Division. You may
not withdraw from the Guaranteed Interest Division more than the total
withdrawal times the ratio of your account value in the Guaranteed Interest
Division to your net account value immediately prior to the withdrawal. Unless
you indicate otherwise, we will make the withdrawal from the amounts in the
Guaranteed Interest Division and the investment options of the Separate Account
in the same proportion that your account value in each investment option bears
to your net account value immediately prior to the withdrawal. The withdrawal
service fee deducted from your account value is deducted from each investment
option and from the Guaranteed Interest Division as described in the prospectus
in effect at the time of the transaction.
We may send you a new Schedule to reflect the effect of the withdrawal if there
is any change to the stated death benefit. We may ask you to return your policy
to our Customer Service Center to make this change. The withdrawal and the
reductions in death benefits will be effective as of the valuation date after we
receive your request.
Form 2505 (VUL)-2/00
Page 20
<PAGE>
SURRENDER PROVISIONS
SURRENDER VALUE
The surrender value on any date will be your account value minus any policy loan
including accrued but unpaid loan interest.
BASIS OF COMPUTATIONS
The surrender value under the policy is not less than the minimum required as of
the policy date by the state in which your policy was delivered. A detailed
statement of the method of computation of policy values under the policy has
been filed with the insurance department of the state in which the policy was
delivered, if required.
FULL SURRENDERS
You may surrender your policy after the Right to Examine Period or at any time
during the lifetime of the insured and receive the surrender value. We will
compute the surrender value as of the next valuation date after we receive both
your request and the policy at our Customer Service Center. This policy will be
canceled as of the date we receive your request, and there will be no further
benefits under this policy. Once you surrender this policy, it cannot be
reinstated.
GRACE PERIOD, TERMINATION AND REINSTATEMENT PROVISIONS
GRACE PERIOD
If the net account value is zero or less on a monthly processing date, the
policy will enter a 61-day grace period:
We will give you a 61-day grace period from this monthly processing date to make
the required premium payment. The required premium payment then due must be paid
to keep the policy in force. If this amount is not received in full by the end
of the grace period, the policy will lapse without value. The required premium
payment will be equal to past due charges plus an amount we expect to be
sufficient to keep the policy and any riders in force for 2 months following
receipt of the required premium payment. If we receive at least the required
premium payment during the grace period, we will apply the net premium payment
to the policy and make deductions for the past due amounts.
Notice of the amount of the required premium payment will be mailed to you or
any assignee at the last known address at least 30 days before the end of the
grace period. If the insured dies during the grace period, we will deduct any
overdue monthly charges from the death proceeds of the policy.
Form 2505 (VUL)-2/00
Page 21
<PAGE>
TERMINATION
All coverage provided by this policy will end as of the earliest of:
a) The date the policy is surrendered;
b) The date of the death of the insured; or
c) The date the grace period ends without payment of the required
premium.
REINSTATEMENT
The policy and its riders may be reinstated within five years after the
beginning of the grace period. The reinstatement will be effective as of the
monthly processing date on or next following the date we approve your written
application.
We will reinstate the policy and any riders if the following conditions are met:
a) You have not surrendered the policy for its surrender value;
b) You submit evidence satisfactory to us that the insured and those
insured under any riders are still insurable according to our normal
rules of underwriting for the applicable underwriting class for this
type of policy; and
c) We receive payment of the amount of premium sufficient to keep the
policy and any riders in force from the beginning of the grace period
to the end of the expired grace period and for 2 months after the date
of reinstatement. We will let you know, at the time you request
reinstatement, the amount of premium needed for this purpose.
We will reinstate any policy loan that existed when coverage ended, with accrued
loan interest to the end of the grace period.
Upon reinstatement, the net premium received minus past due amounts will be
allocated to the investment options of the Separate Account and the Guaranteed
Interest Division according to the premium allocation percentages in effect at
the start of the grace period or as directed by you in writing at the time of
reinstatement.
DEFERRAL OF PAYMENT
Requests for transfers, withdrawals, policy loans or payment of proceeds for a
full surrender will be mailed within 7 days of receipt of the request in a form
acceptable to us. However, we may postpone the processing of any such Separate
Account transactions for any of the following reasons:
a) The New York Stock Exchange (NYSE) is closed, other than customary
weekend and holiday closings.
b) Trading on the NYSE is restricted by the Securities and Exchange
Commission (SEC).
c) The SEC declares that an emergency exists as a result of which
disposal of securities in the Separate Account is not reasonably
practicable to determine your account value in the investment options.
d) A governmental body having jurisdiction over the Separate Account by
order permits such suspension.
Form 2505 (VUL)-2/00
Page 22
<PAGE>
Rules and regulations of the SEC, if any, are applicable and will govern as to
whether conditions described in (b), (c), or (d) exist.
Death proceeds will be paid within 7 days of determination of the proceeds and
are not subject to deferment. We may defer for up to 6 months payment of any
surrender proceeds, withdrawal or loan amounts from the Guaranteed Interest
Division.
GENERAL POLICY PROVISIONS
THE POLICY
The policy, including the original application and applications for any
increases, decreases, riders, endorsements, any Schedule pages, and any
reinstatement applications make up the entire contract between you and us. A
copy of the original application will be attached to the policy at issue or at
delivery. A copy of any application as well as a new Schedule will be attached
or furnished to you for attachment to the policy at the time of any change in
coverage. In the absence of fraud, all statements made in any application will
be considered representations and not warranties. No statement will be used to
deny a claim unless it is in an application.
CONTRACT CHANGES
All changes made by us must be signed by our president or an officer and by our
secretary or assistant secretary. No other persons can change any of this
policy's terms and conditions.
PROCEDURES
We must receive any election, designation, assignment or any other change
request you make in writing, except those specified on the application. It must
be in a form acceptable to us. We may require a return of the policy for any
change or for a full surrender. We are not liable for any action we take before
we receive and record the written request at our Customer Service Center.
In the event of the death of the insured, please notify us, or our agent, as
soon as possible. Upon notification to us, or our agent, instructions will be
sent to you or the beneficiary immediately. We may require proof of age and a
certified copy of the death certificate. We may require the beneficiary and next
of kin to sign authorization forms as part of due proof. These authorization
forms allow us to obtain information about the decedent, including, but not
limited to, medical records of physicians and hospitals used by the decedent.
Settlement will be made upon receipt of due proof of death.
OWNERSHIP
The original owner is the person or entity named as the owner in the
application. You, as the owner, can exercise all rights and receive the benefits
until the death of the insured. This includes the right to change the owner,
beneficiaries, and methods for the payment of proceeds. All rights of the owner
are subject to the rights of any assignee and any irrevocable beneficiary.
You may name a new owner by sending written notice to us. The effective date of
the change to the new owner will be the date you sign the notice. The change
will not affect any payment made or action taken by us before recording the
change at our Customer Service Center.
Form 2505 (VUL)-2/00
Page 23
<PAGE>
BENEFICIARIES
The primary beneficiary surviving the insured will receive any death proceeds
which become payable. Surviving contingent beneficiaries are paid death proceeds
only if no primary beneficiary has survived the insured. If more than one
beneficiary in a class survives the insured, they will share the death proceeds
equally, unless your designation provides otherwise. If there is no designated
beneficiary surviving, you or your estate will be paid the death proceeds. The
beneficiary designation will be on file with us or at a location designated by
us. Until the death of the insured, you may name a new beneficiary. The
effective date of the change will be the date the request was signed. We will
pay proceeds to the most recent beneficiary designation on file. We will not be
subject to multiple payments.
EXCHANGE RIGHT
If, for any reason, within the first 2 policy years you want to exchange this
policy for a policy in which values do not vary with the investment experience
of the Separate Account, we will exchange this policy. The exchange will be
implemented by transferring your account value in each Separate Account
investment option into the Guaranteed Interest Division and removing your future
right to choose to allocate funds to any investment option of the Separate
Account. This transfer will not be subject to the excess transfer charge. We
will require a return of this policy before this change will be processed.
COLLATERAL ASSIGNMENT
You may assign this policy as collateral security by written notice to us. Once
it is recorded with us, the rights of the owner and beneficiary are subject to
the assignment. It is your responsibility to make sure the assignment is valid.
INCONTESTABILITY
After this policy has been in force during the insured's life for 2 years from
the policy date, we will not contest the statements in the application attached
at issue.
After this policy has been in force during the insured's life for 2 years from
the effective date of any new segment or from the effective date of an increase
in any other benefit, we will not contest the statements in the application for
the new segment or other increase.
After this policy has been in force during the insured's life for 2 years from
the effective date of any reinstatement, we will not contest the statements in
the application for such reinstatement.
MISSTATEMENT OF AGE OR GENDER
If the insured's age or gender has been misstated, the death benefit will be
adjusted. The death benefit will be that which the cost of insurance, which was
deducted from your Account Value on the last monthly processing date prior to
the insured's death, would have purchased for the insured's correct age or
gender. If the death benefit adjustment is made prior to death, the adjusted
benefit will be to an equitable amount determined by us. This adjustment will
reflect the death benefit for the correct age or gender.
Form 2505 (VUL)-2/00
Page 24
<PAGE>
SUICIDE EXCLUSION
If the insured commits suicide, while sane or insane, within 2 years of the
policy date, we will make a limited payment to the beneficiary. We will pay in
one sum the amount of all premiums paid to us during that time, minus any
outstanding policy loan (including accrued but unpaid interest) and partial
withdrawals. Coverage under the policy and all riders will then terminate.
If the insured commits suicide, while sane or insane, within 2 years of the
effective date of a new segment or of an increase in any other benefit, we will
make a limited payment to the beneficiary for the new segment or other increase.
This payment will equal the cost of insurance and any applicable monthly expense
charges deducted for such increase. Coverage under that segment will then
terminate.
PERIODIC REPORTS
We will send you, without charge, at least once each year a report that shows
the current account value, cash surrender value and premiums paid since the last
report. The report will also show the allocation of your account value as of the
date of the report and the amounts added to or deducted from your account value
of each division since the last report. The report will include any other
information that may be currently required by the insurance supervisory official
of the jurisdiction in which this policy is delivered.
ILLUSTRATION OF BENEFITS AND VALUES
We will send you, upon written request, a hypothetical illustration of future
death benefits and account values. This illustration will include the
information as required by the laws or regulations where this policy is
delivered. If you request more than one illustration during a policy year, we
reserve the right to charge a reasonable fee for each additional illustration.
The maximum amount of this fee is shown in the Schedule.
NONPARTICIPATING
The policy does not participate in our surplus earnings.
CUSTOMER SERVICE CENTER
Our Customer Service Center is at the address shown in the Schedule. Unless you
are otherwise notified:
a) All requests and payments should be sent to us at our Customer Service
Center; and
b) All transactions are effective as of the valuation date the required
information is received at our Customer Service Center.
PAYOUTS OTHER THAN AS ONE SUM
ELECTION
During the insured's lifetime, you may elect to have the beneficiary receive the
proceeds other than in one sum. If you have not made an election, the
beneficiary may do so within 60 days after we receive due proof satisfactory to
us of the insured's death. You may also elect to take the net cash surrender
value of the policy upon its surrender other than in one sum. Satisfactory
written request must be received at our Customer Service Center
Form 2505 (VUL)-2/00
Page 25
<PAGE>
before payment can be made. A payee that is not a natural person may not be
named without our consent. The various methods of settlement are described in
the following Payout Options section.
PAYOUT OPTIONS
OPTION I. Payouts for a Designated Period. Payouts will be made in annual,
semi-annual, quarterly or monthly installments per year as elected for a
designated period, which may be 5 to 30 years. The installment dollar
amounts will be equal except for any excess interest as described below.
The amount of the first monthly payout for each $1,000 of account value
applied is shown in Settlement Option Table I.
OPTION II. Life Income With Payouts for a Designated Period. Payouts will
be made in annual, semi-annual, quarterly or monthly installments per year
throughout the payee's lifetime, or if longer, for a period of 5, 10, 15 or
20 years as elected. The installment dollar amounts will be equal except
for any excess interest as described below. The amount of the first monthly
payout for each $1,000 of account value applied is shown in Settlement
Option Table II. This option is available only for ages shown in the table.
Payouts for Payout Option II will be determined by using the 1983
Individual Annuity Mortality Table for the appropriate gender at 3 1/2%
interest.
OPTION III. Hold at Interest. Amounts may be left on deposit with us to be
paid upon the death of the payee or at any earlier date elected. Interest
on any unpaid balance will be at the rate declared by us or at any higher
rate required by law. Interest may be accumulated or paid in 1, 2, 4, or 12
installments per year, as elected. Money may not be left on deposit for
more than 30 years.
OPTION IV. Payouts of a Designated Amount. Payouts will be made until
proceeds, together with interest which will be at the rate declared by us
or at any higher rate required by law, are exhausted. Payouts will be made
in annual, semi-annual, quarterly or monthly equal installments per year,
as elected.
OPTION V. Other. Settlement may be made in any other manner as agreed upon
in writing between you (or the beneficiary) and
us.
CHANGE AND WITHDRAWAL
You may change an election at any time before the death of the insured. If you
have given the beneficiary the right to make changes or withdrawals, or if the
beneficiary has elected the option, the beneficiary (as primary payee) may take
the actions below.
a) Changes may be made from Payout Options I, III, and IV to another
option.
b) Full withdrawals may be made under Payout Option III or IV. Partial
withdrawals of not less than $300 may be made under Payout Option III.
c) Remaining installments under Payout Option I may be commuted at 3 1/2%
interest and received in one sum.
d) Changes in any contingent payee designation may be made.
A written request must be sent to our Customer Service Center in writing to make
a change or withdrawal. We also may require that you send in the supplementary
policy. We may defer payment of commuted and withdrawable amounts for a period
up to 6 months.
Form 2505 (VUL)-2/00
Page 26
<PAGE>
EXCESS INTEREST
If we declare that Payout Options are to be credited with an interest rate above
that guaranteed, that rate will apply to Payout Options I, II, III, and IV. The
crediting of excess interest for one period does not guarantee the higher rate
for other periods. Any declared interest rate will be in effect for at least 12
months.
MINIMUM AMOUNTS
The minimum amount which may be applied under any option is $2,000. If the
payments to the payee are ever less than $20, we may change the frequency of
payments so as to result in payments of at least that amount.
SUPPLEMENTARY POLICY
When a payout option becomes effective, the policy will be surrendered in
exchange for a supplementary policy. It will provide for the manner of
settlement and rights of the payees. The supplementary policy's effective date
will be the date of death or the date of other settlement. The first payment
under Options I, II, and IV will be payable as of the effective date. The first
interest payment under Option III will be made as of the end of the interest
payment period elected. Subsequent payments will be made in accordance with the
frequency of payment elected. The supplementary policy may not be assigned or
payments made to another without our consent.
INCOME PROTECTION
Unless otherwise provided in the election, a payee does not have the right to
commute, transfer or encumber amounts held or installments to become payable. To
the extent provided by law, the proceeds, amount retained, and installments are
not subject to any payee's debts, policies, or engagements.
DEATH OF PRIMARY PAYEE
Upon the primary payee's death, any payments certain under Option I or II,
interest payments under Option III, or payments under Option IV will be
continued to the contingent payee; or, amounts may be released in one sum if
permitted by the policy. The final payee will be the estate of the last to die
of the primary payee and any contingent payee.
PAYMENTS OTHER THAN MONTHLY
The tables that follow show monthly installments for Options I and II. To arrive
at annual, semiannual, or quarterly payments, multiply the appropriate figures
by 11.813, 5.957 or 2.991 respectively. Factors for other periods certain or for
other options that may be provided by mutual agreement will be provided upon
reasonable request.
Form 2505 (VUL)-2/00
Page 27
<PAGE>
SETTLEMENT OPTION TABLES
SETTLEMENT OPTION TABLE I
(Per $1,000 of Net Proceeds)
<TABLE>
<CAPTION>
No. of Monthly No. of Monthly
Years Payable Installments Years Payable Installments
<S> <C> <C> <C>
1 $84.65 16 6.76
2 43.05 17 6.47
3 29.19 18 6.20
4 22.27 19 5.97
5 18.12 20 5.75
6 15.35 21 5.56
7 13.38 22 5.39
8 11.90 23 5.24
9 10.75 24 5.09
10 9.83 25 4.96
11 9.09 26 4.84
12 8.46 27 4.73
13 7.94 28 4.63
14 7.49 29 4.53
15 7.10 30 4.45
</TABLE>
Form 2505 (VUL)-2/00
Page 28
<PAGE>
SETTLEMENT OPTION TABLE II
Female
( Per $1,000 of Net Proceeds)
<TABLE>
<CAPTION>
Age of Payee Monthly Age of Payee Monthly
Nearest Birth Installment Nearest Birth Installments
date When First date When First
Installment is Installment is
Payable Payable
5 Years 10 Years 15 Years 20 Years 5 Years 10 Years 15 Years 20 Years
Female Certain Certain Certain Certain Female Certain Certain Certain Certain
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
15 3.19 3.19 3.19 3.19 41 3.76 3.76 3.75 3.73
16 3.20 3.20 3.20 3.20 42 3.80 3.80 3.78 3.77
17 3.22 3.22 3.21 3.21 43 3.84 3.84 3.82 3.81
18 3.23 3.23 3.23 3.23 44 3.88 3.88 3.86 3.84
19 3.24 3.24 3.24 3.24 45 3.93 3.92 3.91 3.88
20 3.26 3.26 3.26 3.25 46 3.98 3.97 3.95 3.92
21 3.27 3.27 3.27 3.27 47 4.03 4.02 4.00 3.97
22 3.29 3.29 3.29 3.28 48 4.08 4.07 4.05 4.01
23 3.31 3.30 3.30 3.30 49 4.13 4.12 4.10 4.06
24 3.32 3.32 3.32 3.32 50 4.19 4.18 4.15 4.11
25 3.34 3.34 3.34 3.33 51 4.25 4.24 4.21 4.16
26 3.36 3.36 3.35 3.35 52 4.32 4.30 4.26 4.21
27 3.38 3.38 3.37 3.37 53 4.38 4.36 4.33 4.27
28 3.40 3.40 3.39 3.39 54 4.46 4.43 4.39 4.32
29 3.42 3.42 3.41 3.41 55 4.53 4.51 4.46 4.38
30 3.44 3.44 3.43 3.43 56 4.61 4.58 4.53 4.44
31 3.46 3.46 3.46 3.45 57 4.70 4.66 4.60 4.51
32 3.49 3.48 3.48 3.48 58 4.79 4.75 4.68 4.57
33 3.51 3.51 3.51 3.50 59 4.88 4.84 4.76 4.64
34 3.54 3.54 3.53 3.52 60 4.99 4.93 4.84 4.70
35 3.57 3.56 3.56 3.55 61 5.09 5.03 4.93 4.77
36 3.60 3.59 3.59 3.58 62 5.21 5.14 5.02 4.84
37 3.63 3.62 3.62 3.61 63 5.33 5.25 5.12 4.91
38 3.66 3.65 3.65 3.64 64 5.46 5.37 5.21 4.98
39 3.69 3.69 3.68 3.67 65 5.60 5.50 5.31 5.05
40 3.73 3.72 3.71 3.70 66 5.75 5.63 5.42 5.12
</TABLE>
Form 2505 (VUL)-2/00
Page 29
<PAGE>
SETTLEMENT OPTION TABLE II/Female
(Continued)
(Per $1,000 of Net Proceeds)
<TABLE>
<CAPTION>
Age of Payee Monthly Age of Payee Monthly
Nearest Birth Installment Nearest Birth Installments
date When First date When First
Installment is Installment is
Payable Payable
5 Years 10 Years 15 Years 20 Years 5 Years 10 Years 15 Years 20 Years
Female Certain Certain Certain Certain Female Certain Certain Certain Certain
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
67 5.91 5.77 5.53 5.19 92 14.45 9.61 7.09 5.75
68 6.08 5.91 5.63 5.25 93 14.81 9.66 7.10 5.75
69 6.26 6.07 5.74 5.32 94 15.16 9.70 7.10 5.75
70 6.46 6.23 5.86 5.37 95 15.49 9.73 7.10 5.75
71 6.67 6.40 5.97 5.43 96 15.80 9.76 7.10
72 6.89 6.58 6.08 5.48 97 16.11 9.79 7.10
73 7.13 6.76 6.18 5.52 98 16.40 9.80 7.10
74 7.39 6.95 6.29 5.57 99 16.68 9.82 7.10
75 7.67 7.14 6.39 5.60 100 16.95 9.82 7.10
76 7.96 7.34 6.48 5.63 101 17.20 9.83
77 8.28 7.54 6.57 5.66 102 17.43 9.83
78 8.61 7.74 6.65 5.68 103 17.62 9.83
79 8.97 7.94 6.72 5.70 104 17.78 9.83
80 9.34 8.13 6.79 5.71 105 17.91 9.83
81 9.73 8.32 6.84 5.72 106 18.00
82 10.14 8.50 6.89 5.73 107 18.06
83 10.57 8.67 6.94 5.74 108 18.09
84 11.01 8.83 6.97 5.74 109 18.11
85 11.46 8.97 7.00 5.75 110 18.11
86 11.91 9.10 7.02 5.75
87 12.36 9.22 7.04 5.75
88 12.81 9.32 7.06 5.75
89 13.25 9.41 7.07 5.75
90 13.67 9.48 7.08 5.75
91 14.07 9.55 7.09 5.75
</TABLE>
Form 2505 (VUL)-2/00
Page 30
<PAGE>
SETTLEMENT OPTION TABLE II
Male
( Per $1,000 of Net Proceeds)
<TABLE>
<CAPTION>
Age of Payee Age of Payee
Nearest Birth Nearest Birth
date When First date When First
Installment is Monthly Installment Installment is Monthly Installment
Payable Payable
5 Years 10 Years 15 Years 20 Years 5 Years 10 Years 15 Years 20 Years
Male Certain Certain Certain Certain Male Certain Certain Certain Certain
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
15 3.28 3.28 3.27 3.27 41 4.01 4.00 3.97 3.94
16 3.29 3.29 3.29 3.28 42 4.06 4.04 4.01 3.98
17 3.31 3.31 3.30 3.30 43 4.11 4.09 4.06 4.02
18 3.32 3.32 3.32 3.32 44 4.16 4.14 4.11 4.06
19 3.34 3.34 3.34 3.33 45 4.22 4.20 4.16 4.11
20 3.36 3.36 3.35 3.35 46 4.28 4.25 4.21 4.16
21 3.38 3.38 3.37 3.37 47 4.34 4.31 4.27 4.21
22 3.40 3.40 3.39 3.39 48 4.41 4.38 4.33 4.26
23 3.42 3.42 3.41 3.41 49 4.48 4.44 4.39 4.31
24 3.44 3.44 3.43 3.43 50 4.55 4.51 4.45 4.36
25 3.46 3.46 3.45 3.45 51 4.62 4.58 4.52 4.42
26 3.49 3.48 3.48 3.47 52 4.70 4.66 4.58 4.48
27 3.51 3.51 3.50 3.49 53 4.79 4.74 4.65 4.54
28 3.54 3.53 3.53 3.52 54 4.88 4.82 4.73 4.60
29 3.56 3.56 3.55 3.54 55 4.97 4.91 4.80 4.66
30 3.59 3.59 3.58 3.57 56 5.07 5.00 4.88 4.72
31 3.62 3.62 3.61 3.60 57 5.17 5.10 4.97 4.78
32 3.65 3.65 3.64 3.62 58 5.29 5.20 5.05 4.85
33 3.68 3.68 3.67 3.65 59 5.41 5.31 5.14 4.91
34 3.72 3.71 3.70 3.68 60 5.53 5.42 5.23 4.97
35 3.75 3.75 3.73 3.72 61 5.67 5.54 5.33 5.04
36 3.79 3.78 3.77 3.75 62 5.81 5.67 5.42 5.10
37 3.83 3.82 3.81 3.78 63 5.97 5.80 5.52 5.16
38 3.87 3.86 3.85 3.82 64 6.13 5.94 5.62 5.22
39 3.92 3.90 3.89 3.86 65 6.31 6.08 5.72 5.28
40 3.96 3.95 3.93 3.90
</TABLE>
Form 2505 (VUL)-2/00
Page 31
<PAGE>
SETTLEMENT OPTION TABLE II/Male
(Continued)
(Per $1,000 of Net Proceeds)
<TABLE>
<CAPTION>
Age of Payee Age of Payee
Nearest Birth Nearest Birth
date When First date When First
Installment is Monthly Installment Installment is Monthly Installment
Payable Payable
5 Years 10 Years 15 Years 20 Years 5 Years 10 Years 15 Years 20 Years
Male Certain Certain Certain Certain Male Certain Certain Certain Certain
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
66 6.49 6.23 5.82 5.33 91 14.64 9.64 7.09 5.75
67 6.69 6.38 5.92 5.38 92 15.00 9.68 7.10 5.75
68 6.90 6.54 6.02 5.43 93 15.34 9.72 7.10 5.75
69 7.12 6.71 6.12 5.48 94 15.68 9.75 7.10 5.75
70 7.35 6.87 6.21 5.52 95 16.00 9.78 7.10 5.75
71 7.60 7.05 6.30 5.55 96 16.30 9.80 7.10
72 7.86 7.22 6.39 5.59 97 16.59 9.81 7.10
73 8.13 7.40 6.47 5.62 98 16.86 9.82 7.10
74 8.42 7.57 6.55 5.64 99 17.11 9.83 7.10
75 8.72 7.75 6.62 5.66 100 17.33 9.83 7.10
76 9.04 7.92 6.69 5.68 101 17.53 9.83
77 9.37 8.09 6.75 5.70 102 17.69 9.83
78 9.72 8.26 6.81 5.71 103 17.82 9.83
79 10.08 8.42 6.86 5.72 104 17.92 9.83
80 10.44 8.57 6.90 5.73 105 18.00 9.83
81 10.82 8.71 6.94 5.74 106 18.05
82 11.21 8.85 6.97 5.74 107 18.08
83 11.59 8.97 7.00 5.75 108 18.10
84 11.99 9.09 7.02 5.75 109 18.11
85 12.38 9.20 7.04 5.75 110 18.11
86 12.76 9.29 7.05 5.75
87 13.15 9.38 7.07 5.75
88 13.53 9.46 7.08 5.75
89 13.91 9.53 7.08 5.75
90 14.28 9.59 7.09 5.75
</TABLE>
Form 2505 (VUL)-2/00
Page 32
<PAGE>
This Policy is a FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY
This is a Non-Participating Policy
Death benefits and other values provided by this contract, when based on the
investment experience of a separate account, are variable. These values may
increase or decrease based on investment experience and are not guaranteed as to
fixed dollar amount. Death benefits are payable by us upon the death of the
insured. There is no maturity date. Flexible premiums are payable by you during
the lifetime of the insured until the policy anniversary nearest the insured's
100th birth date.
To obtain information or make a complaint, contact
Security Life of Denver Insurance Company at:
Customer Service Center
P. O. Box 173888
Denver, Colorado 80217
Toll Free Number: 1(800)848-6362
SECURITY LIFE OF DENVER INSURANCE COMPANY
A Stock Company
Form 2505 (VUL)-2/00
DRAFT EXHIBIT 1.A(8)(a)(viii)
FORM OF
PARTICIPATION AGREEMENT
-----------------------
AMONG
SECURITY LIFE OF DENVER INSURANCE COMPANY,
THE GCG TRUST,
AND
DIRECTED SERVICES, INC.
THIS AGREEMENT, dated as of the _____ day of ________, 2000, by and among
Security Life of Denver Insurance Company (the "Company"), a life insurance
company organized under the laws of the State of Delaware, on its own behalf and
on behalf of each separate account of the Company set forth on Schedule A hereto
as may be amended from time to time (each such account hereinafter referred to
as the "Account"), The GCG Trust (the "Fund"), a management investment company
and business trust organized under the laws of the Commonwealth of
Massachusetts, Directed Services, Inc.(the "Adviser" and the "Distributor), a
corporation organized under the laws of the State of New York.
WHEREAS, the Fund engages in business as an open-end management investment
company and is available to act as the investment vehicle for separate accounts
established for variable life insurance and variable annuity contracts (the
"Variable Insurance Products") to be offered by insurance companies which have
entered into participation agreements with the Fund, Adviser and Distributor
("Participating Insurance Companies");
WHEREAS, the shares of beneficial interest of the Fund are divided into
several series of shares, each designated a "Portfolio" and representing the
interest in a particular managed portfolio of securities and other assets;
WHEREAS, the Fund has obtained an order from the Securities and Exchange
Commission (the "SEC") granting Participating Insurance Companies and variable
annuity and variable life insurance separate accounts exemptions from the
provisions of sections 9(a), 13(a), 15(a), and 15(b) of the Investment Company
Act of 1940, as amended, (the "1940 Act") and Rules 6e-2(b)(15) and
6e-3(T)(b)(15) thereunder, if and to the extent necessary to permit shares of
the Fund to be sold to and held by variable annuity and variable life insurance
separate accounts of both affiliated and unaffiliated life insurance companies
(the "Mixed and Shared Funding Exemptive Order"), and the parties to this
Agreement agree to comply with the conditions or undertakings specified in the
Mixed and Shared Funding Exemptive Order to the extent applicable to each such
party;
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and shares of the Portfolios are registered under the
Securities Act of 1933, as amended (the "1933 Act");
<PAGE>
WHEREAS, the Adviser, which serves as investment adviser to the Fund, is
duly registered as an investment adviser under the federal Investment Advisers
Act of 1940, as amended;
WHEREAS, the Company has registered or will register certain variable
annuity contracts (the "Contracts") under the 1933 Act;
WHEREAS, the Account is a duly organized, validly existing segregated asset
account, established by the Company under the insurance laws of the State of
Delaware, to set aside and invest assets attributable to the Contracts;
WHEREAS, the Company has registered the Account as a unit
investment trust under the 1940 Act;
WHEREAS, the Company has issued or will issue certain variable life
insurance and/or variable annuity contracts supported wholly or partially by the
Account (the "Contracts"), and said Contracts are listed in Schedule A hereto,
as it may be amended from time to time by mutual written agreement;
WHEREAS, the Distributor, which serves as distributor to the Fund, is
registered as a broker dealer with the SEC under the Securities Exchange Act of
1934, as amended (the "1934 Act"), and is a member in good standing of the
National Association of Securities Dealers, Inc. (the "NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios listed in
Schedule B hereto, as it may be amended from time to time by mutual written
agreement (the "Designated Portfolios") on behalf of the Account to fund the
aforesaid Contracts, and the Distributor is authorized to sell such shares to
the Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company, the
Fund, the Adviser, and the Distributor agree as follows:
ARTICLE I. Sale of Fund Shares
-------------------
1.1. The Fund agrees to sell to the Company those shares of the Designated
Portfolios that each Account or the appropriate subaccount of each Account
orders, executing such orders on a daily basis at the net asset value next
computed after receipt and acceptance by the Fund or its designee of the order
for the shares of the Fund. For purposes of this Section 1.1, the Company will
be the designee of the Fund for receipt of such orders from each Account or the
appropriate subaccount of each Account and receipt by such designee will
constitute receipt by the Fund; provided that the Fund receives notice of such
order by 10:00 a.m. Eastern Time on the next following business day ("T+1").
"Business Day" will mean any day on which the New York Stock Exchange is open
for trading and on which the Fund calculates its net asset value pursuant to the
rules of the SEC.
1.2. The Company will pay for Fund shares on T+1 that an order to
purchase Fund shares is made in accordance with Section 1.1 above.
Payment will be in federal funds transmitted by wire. This wire
transfer will be initiated by 12:00 p.m. Eastern Time.
1.3. The Fund agrees to make shares of the Designated Portfolios available
indefinitely for purchase at the applicable net asset value per share by
Participating Insurance Companies and their separate accounts on those days on
which the Fund calculates its Designated Portfolio net asset value pursuant to
rules of the SEC and the Fund shall use reasonable efforts to calculate such net
asset value on each day the New York Stock Exchange is open for trading;
provided, however, that the Board of
- 2 -
<PAGE>
Trustees of the Fund (the "Fund Board") may refuse to sell shares of any
Portfolio to any person, or suspend or terminate the offering of shares of any
Portfolio if such action is required by law or by regulatory authorities having
jurisdiction or is, in the sole discretion of the Fund Board, acting in good
faith and in light of its fiduciary duties under federal and any applicable
state laws, necessary in the best interests of the shareholders of such
Portfolio.
1.4. On each Business Day on which the Fund calculates its net asset value,
the Company will aggregate and calculate the net purchase or redemption orders
for each Account or the appropriate subaccount of each Account maintained by the
Fund in which contract owner assets are invested. Net orders will only reflect
orders that the Company has received prior to the close of regular trading on
the New York Stock Exchange, Inc. (the "NYSE") (currently 4:00 p.m., Eastern
Time) on that Business Day. Orders that the Company has received after the close
of regular trading on the NYSE will be treated as though received on the next
Business Day. Each communication of orders by the Company will constitute a
representation that such orders were received by it prior to the close of
regular trading on the NYSE on the Business Day on which the purchase or
redemption order is priced in accordance with Rule 22c-1 under the 1940 Act.
Other procedures relating to the handling of orders will be in accordance with
the prospectus and statement of information of the relevant Designated Portfolio
or with oral or written instructions that the Distributor or the Fund will
forward to the Company from time to time.
1.5. The Fund agrees that shares of the Fund will be sold only to
Participating Insurance Companies and their separate accounts, qualified pension
and retirement plans or such other persons as are permitted under applicable
provisions of the Internal Revenue Code of 1986, as amended, (the "Internal
Revenue Code"), and regulations promulgated thereunder, the sale to which will
not impair the tax treatment currently afforded the Contracts. No shares of any
Portfolio will be sold to the general public except as set forth in this Section
1.5.
1.6. The Fund agrees to redeem for cash, upon the Company's request, any
full or fractional shares of the Fund held by the Company, executing such
requests on a daily basis at the net asset value next computed after receipt and
acceptance by the Fund or its agent of the request for redemption. For purposes
of this Section 1.6, the Company will be the designee of the Fund for receipt of
requests for redemption from each Account or the appropriate subaccount of each
Account and receipt by such designee will constitute receipt by the Fund,
provided the Fund receives notice of request for redemption by 10:00 a.m.
Eastern Time on the next following Business Day. Payment will be in federal
funds transmitted by wire to the Company's account as designated by the Company
in writing from time to time, on the same Business Day the Fund receives notice
of the redemption order from the Company. The Fund reserves the right to delay
payment of redemption proceeds, but in no event may such payment be delayed
longer than the period permitted by the 1940 Act. The Fund will not bear any
responsibility whatsoever for the proper disbursement or crediting of redemption
proceeds; the Company alone will be responsible for such action. If notification
of redemption is received after 10:00 a.m. Eastern Time, payment for redeemed
shares will be made on the next following Business Day.
1.7. The Company agrees to purchase and redeem the shares of the Designated
Portfolios offered by the then current prospectus of the Fund in accordance with
the provisions of such prospectus.
1.8. Issuance and transfer of the Fund's shares will be by book entry only.
Stock certificates will not be issued to the Company or any Account. Purchase
and redemption orders for Fund shares will be recorded in an appropriate title
for each Account or the appropriate subaccount of each Account.
- 3 -
<PAGE>
1.9. The Fund will furnish same day notice (by telecopier, followed by
written confirmation) to the Company of the declaration of any income, dividends
or capital gain distributions payable on each Designated Portfolio's shares. The
Company hereby elects to receive all such dividends and distributions as are
payable on the Designated Portfolio shares in the form of additional shares of
that Designated Portfolio. The Fund will notify the Company of the number of
shares so issued as payment of such dividends and distributions. The Company
reserves the right to revoke this election upon reasonable prior notice to the
Fund and to receive all such dividends and distributions in cash.
1.10. The Fund will make the net asset value per share for each Designated
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated and will use its
best efforts to make such net asset value per share available by 6:00 p.m.,
Eastern Time, but in no event later than 7:00 p.m., Eastern Time, each business
day.
1.11. In the event adjustments are required to correct any error in the
computation of the net asset value of the Fund's shares, the Fund or the
Distributor will notify the Company as soon as practicable after discovering the
need for those adjustments that result in an aggregate reimbursement of $150 or
more to any one subaccount of each Account maintained by a Designated Portfolio
unless notified otherwise by the Company (or, if greater, results in an
adjustment of $10 or more to each contractowner's account). Any such notice will
state for each day for which an error occurred the incorrect price, the correct
price and, to the extent communicated to the Fund's shareholders, the reason for
the price change. The Company may send this notice or a derivation thereof (so
long as such derivation is approved in advance by the Distributor or the
Adviser) to contractowners whose accounts are affected by the price change. The
parties will negotiate in good faith to develop a reasonable method for
effecting such adjustments. The Fund shall provide the Company, on behalf of the
Account or the appropriate subaccount of each Account, with a prompt adjustment
to the number of shares purchased or redeemed to reflect the correct share net
asset value.
1.12.
(a) The parties hereto acknowledge that the arrangement contemplated
by this Agreement is not exclusive; the Fund's shares may be sold to other
insurance companies (subject to Section 1.8 hereof) and the cash value of
the Contracts may be invested in other investment companies, provided,
however, that until this Agreement is terminated pursuant to Article X, the
Company shall promote the Designated Portfolios on the same basis as other
funding vehicles available under the Contracts and funding vehicles other
than those listed on Schedule B to this Agreement may be available for the
investment of the cash value of the Contracts.
(b) The Company shall not, without prior notice to the Advisor and the
Distributor (unless otherwise required by applicable law), take any action
to operate the Account as a management investment company under the 1940
Act.
(c) The Company shall not, without prior notice to the Advisor and the
Distributor (unless otherwise required by applicable law), induce Contract
owners to change or modify the Fund or change the Fund's distributor or
investment adviser.
(d) The Company shall not, without prior notice to the Fund, induce
Contract owners to vote on any matter submitted for consideration by the
shareholders of the Fund in a manner other than as recommended by the Board
of Trustees of the Fund.
- 4 -
<PAGE>
ARTICLE II. Representations and Warranties
------------------------------
2.1. The Company represents and warrants that the Contracts are or will be
registered under the 1933 Act and that the Contracts will be issued and sold in
compliance with all applicable federal and state laws, including state insurance
suitability requirements. The Company further represents and warrants that it is
an insurance company duly organized and in good standing under applicable law
and that it has legally and validly established each Account as a separate
account under applicable state law and has registered the Account as a unit
investment trust in accordance with the provisions of thin 1940 Act to serve as
a segregated investment account for the Contracts, and that it will maintain
such registration for so long as any Contracts are outstanding. The Company will
amend the registration statement under the 1933 Act for the Contracts and the
registration statement under the 1940 Act for the Account from time to time as
required in order to effect the continuous offering of the Contracts or as may
otherwise be required by applicable law. The Company will register and qualify
the Contracts for sale in accordance with the securities laws of the various
states only if and to the extent deemed necessary by the Company.
2.2. The Company represents that the Contracts are currently and at the
time of issuance will be treated as endowment, annuity or life insurance
contracts under applicable provisions of the Internal Revenue Code, and that it
will make every effort to maintain such treatment and that it will notify the
Fund and the Adviser immediately upon having a reasonable basis for believing
that the Contracts have ceased to be so treated or that they might not be so
treated in the future.
2.3. The Company represents and warrants that it will not purchase shares
of the Designated Portfolios with assets derived from tax-qualified retirement
plans except, indirectly, through Contracts purchased in connection with such
plans.
2.4. The Fund represents and warrants that Fund shares of the Designated
Portfolios sold pursuant to this Agreement will be registered under the 1933 Act
and duly authorized for issuance in accordance with applicable law and that the
Fund is and will remain registered under the 1940 Act for as long as such shares
of the Designated Portfolios are outstanding. The Fund will amend the
registration statement for its shares under the 1933 Act and the 1940 Act from
time to time as required in order to effect the continuous offering of its
shares. The Fund will register and qualify the shares of the Designated
Portfolios for sale in accordance with the laws of the various states only if
and to the extent deemed advisable by the Fund.
2.5. The Fund represents that it is currently qualified as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code, and that it
will make every effort to maintain such qualification (under Subchapter M or any
successor or similar provision) and that it will notify the Company immediately
upon having a reasonable basis for believing that it has ceased to so qualify or
that it might not so qualify in the future.
2.6. The Fund represents and warrants that in performing the services
described in this Agreement, the Fund will comply with all applicable laws,
rules and regulations. The Fund makes no representation as to whether any aspect
of its operations (including, but not limited to, fees and expenses and
investment policies, objectives and restrictions) complies with the insurance
laws and regulations of any state. The Fund and the Distributor agree that upon
request they will use their best efforts to furnish the information required by
state insurance laws so that the Company can obtain the authority needed to
issue the Contracts in the various states.
- 5 -
<PAGE>
2.7. The Fund currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act, although it
reserves the right to make such payments in the future. To the extent that it
decides to finance distribution expenses pursuant to Rule 12b-1 the Fund
undertakes to have its Fund Board formulate and approve any plan under Rule
12b-1 to finance distribution expenses in accordance with the 1940 Act.
2.8. The Distributor represents and warrants that it will distribute the
Fund shares of the Designated Portfolios in accordance with all applicable
federal and state securities laws including, without limitation, the 1933 Act,
the 1934 Act and the 1940 Act.
2.9. The Fund represents that it is lawfully organized and validly existing
under the laws of the Commonwealth of Massachusetts and that it does and will
comply in all material respects with applicable provisions of the 1940 Act.
2.10. The Distributor represents and warrants that it is and will remain
duly registered under all applicable federal and state securities laws and that
it will perform its obligations for the Fund in accordance in all material
respects with any applicable state and federal securities laws.
2.11. The Fund and the Distributor represent and warrant that all of their
trustees, officers, employees, investment advisers, and other
individuals/entities having access to the funds and/or securities of the Fund
are and continue to be at all times covered by a blanket fidelity bond or
similar coverage for the benefit of the Fund in an amount not less than the
minimal coverage as required currently by Rule 17g-(1) of the 1940 Act or
related provisions as may be promulgated from time to time. The aforesaid bond
includes coverage for larceny and embezzlement and is issued by a reputable
bonding company.
ARTICLE III. Prospectuses and Proxy Statements; Voting
-----------------------------------------
3.1. The Fund or the Distributor will provide the Company, at the Fund's or
its affiliate's expense, with as many copies of the current Fund prospectus for
the Designated Portfolios as the Company may reasonably request for
distribution, at the Company's expense, to prospective contractowners and
applicants. The Fund or the Distributor will provide, at the Fund's or its
affiliate's expense, as many copies of said prospectus as necessary for
distribution, at the Company's expense, to existing contractowners. The Fund or
the Distributor will provide the copies of said prospectus to the Company or to
its mailing agent. If requested by the Company in lieu thereof, the Fund or the
Distributor will provide such documentation, including a computer diskette or a
final copy of a current prospectus set in type at the Fund's or its affiliate's
expense, and such other assistance as is reasonably necessary in order for the
Company at least annually (or more frequently if the Fund prospectus is amended
more frequently) to have the Fund's prospectus and the prospectuses of other
mutual funds in which assets attributable to the Contracts may be invested
printed together in one document, in which case the Fund or its affiliate will
bear its reasonable share of expenses as described above, allocated based on the
proportionate number of pages of the Fund's and other fund's respective portions
of the document.
3.2. The Fund or the Distributor will provide the Company, at the Fund's or
its affiliate's expense, with as many copies of the statement of additional
information as the Company may reasonably request for distribution, at the
Company's expense, to prospective contractowners and applicants. The Fund or the
Distributor will provide, at the Fund's or its affiliate's expense, as many
copies of said statement of additional information as necessary for
distribution, at the Company's expense, to any existing contractowner who
requests such statement or whenever state or federal law otherwise requires that
such
- 6 -
<PAGE>
statement be provided. The Fund or the Distributor will provide the copies of
said statement of additional information to the Company or to its mailing agent.
3.3. The Fund or the Distributor, at the Fund's or its affiliate's expense,
will provide the Company or its mailing agent with copies of its proxy material,
if any, reports to shareholders and other communications to shareholders in such
quantity as the Company will reasonably require. The Company will distribute
this proxy material, reports and other communications to existing contract
owners and tabulate the votes.
3.4. If and to the extent required by law the Company will:
(a) solicit voting instructions from contractowners;
(b) vote the shares of the Designated Portfolios held in the
Account in accordance with instructions received from
contractowners; and
(c) vote shares of the Designated Portfolios held in the Account for
which no timely instructions have been received, as well as shares it owns,
in the same proportion as shares of such Designated Portfolio for which
instructions have been received from the Company's contractowners;
so long as and to the extent that the SEC continues to interpret the 1940 Act to
require pass-through voting privileges for variable contractowners. Except as
set forth above, the Company reserves the right to vote Fund shares held in any
segregated asset account in its own right, to the extent permitted by law. The
Company will be responsible for assuring that each of its separate accounts
participating in the Fund calculates voting privileges in a manner consistent
with all legal requirements, including the Mixed and Shared Funding Exemptive
Order.
3.5. The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular, the Fund either will provide for
annual meetings (except insofar as the SEC may interpret Section 16 of the 1940
Act not to require such meetings) or, as the Fund currently intends to comply
with Section 16(c) of the 1940 Act (although the Fund is not one of the trusts
described in Section 16(c) of that Act) as well as with Sections 16(a) and, if
and when applicable, 16(b). Further, the Fund will act in accordance with the
SEC's interpretation of the requirements of Section 16(a) with respect to
periodic elections of trustees and with whatever rules the SEC may promulgate
with respect thereto.
ARTICLE IV. Sales Material and Information
------------------------------
4.1. the Distributor will provide the Company on a timely basis with
investment performance information for each Designated Portfolio in which the
Company maintains a subaccount of the Account, including total return for the
preceding calendar month and calendar quarter, the calendar year to date, and
the prior one-year, five-year, and ten year (or life of the Fund) periods. The
Company may, based on the SEC mandated information supplied by the Distributor,
prepare communications for contractowners ("Contractowner Materials"). The
Company will provide copies of all Contractowner Materials concurrently with
their first use for the Distributor's internal recordkeeping purposes. It is
understood that neither the Distributor nor any Designated Portfolio will be
responsible for errors or omissions in, or the content of, Contractowner
Materials except to the extent that the error or omission resulted from
information provided by or on behalf of the Distributor or the Designated
Portfolio. Any printed information that is furnished to the Company pursuant to
this Agreement other than each Designated
- 7 -
<PAGE>
Portfolio's prospectus or statement of additional information (or information
supplemental thereto), periodic reports and proxy solicitation materials is the
Distributor's sole responsibility and not the responsibility of any Designated
Portfolio or the Fund. The Company agrees that the Portfolios, the shareholders
of the Portfolios and the officers and governing Board of the Fund will have no
liability or responsibility to the Company in these respects.
4.2. The Company will not give any information or make any representations
or statements on behalf of the Fund or concerning the Fund in connection with
the sale of the Contracts other than the information or representations
contained in the registration statement, prospectus or statement of additional
information for Fund shares, as such registration statement, prospectus and
statement of additional information may be amended or supplemented from time to
time, or in reports or proxy statements for the Fund, or in published reports
for the Fund which are in the public domain or approved by the Fund or the
Distributor for distribution, or in sales literature or other material provided
by the Fund, Adviser or by the Distributor, except with permission of the
Distributor. Any piece of sales literature or other promotional material
intended to be used by the Company which requires the permission of the
Distributor prior to use will be furnished by Company to the Distributor, or its
designee, at least ten (10) business days prior to its use. No such material
will be used if the Distributor reasonably objects to such use within five (5)
business days after receipt.
Nothing in this Section 4.2 will be construed as preventing the Company or its
employees or agents from giving advice on investment in the Fund.
4.3. The Fund, the Adviser or the Distributor will furnish, or will cause
to be furnished, to the Company or its designee, each piece of sales literature
or other promotional material in which the Company or its Account is named, at
least ten (10) business days prior to its use. No such material will be used if
the Company reasonably objects to such use within five (5) business days after
receipt of such material.
4.4. The Fund, the Adviser and the Distributor will not give any
information or make any representations or statements on behalf of the Company
or concerning the Company, each Account, or the Contracts other than the
information or representations contained in a registration statement, prospectus
or statement of additional information for the Contracts, as such registration
statement, prospectus and statement of additional information may be amended or
supplemented from time to time, or in published reports for each Account or the
Contracts which are in the public domain or approved by the Company for
distribution to contractowners, or in sales literature or other material
provided by the Company, except with permission of the Company. The Company
agrees to respond to any request for approval on a prompt and timely basis.
4.5. The Fund will provide to the Company at least one complete copy of all
registration statements, prospectuses, statements of additions information,
reports, proxy statements, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to the Fund or its shares, contemporaneously
with the filing of such document with the SEC, the NASD or other regulatory
authority.
4.6. The Company will provide to the Fund at least one complete copy of all
registration statements, prospectuses, statements of additional information,
reports, solicitations for voting instructions, sales literature and other
promotional materials, applications for exemptions, requests for no action
letters, and all amendments to any of the above, that relate to the Contracts or
each Account, contemporaneously with the filing of such document with the SEC,
the NASD or other regulatory authority.
- 8 -
<PAGE>
4.7. For purposes of this Article IV, the phrase "sales literature or other
promotional material" includes, but is not limited to, advertisements (such as
material published, or designed for use in, a newspaper, magazine, or other
periodical, radio, television, telephone or tape recording, videotape display,
signs or billboards, motion pictures, or other public media, (e.g., on-line
networks such as the Internet or other electronic messages), sales literature
(i.e., any written communication distributed or made generally available to
customers or the public, including brochures, circulars, research reports,
market letters, form letters, seminar texts, reprints or excerpts of any other
advertisements sales literature, or published article), educational or training
materials or other communications distributed or made generally available to
some or all agents or employees, registration statements, prospectuses,
statements of additional information, shareholder reports, and proxy materials
and any other material constituting sales literature or advertising under the
NASD rules, the 1933 Act or the 1940 Act.
4.8. The Fund and the Distributor hereby consent to the Company's use of
the names The GCG Trust, Directed Services, Inc., the portfolio names designated
on Schedule B or other designated names as may be used from time to time in
connection with the marketing of the Contracts, subject to the terms of Sections
4.1 and 4.2 of this Agreement. Such consent will terminate with the termination
of this Agreement.
ARTICLE V. Fees and Expenses
-----------------
5.1. The Fund, the Adviser and the Distributor will pay no fee or other
compensation to the Company under this Agreement except if the Fund or any
Designated Portfolio adopts and implements a plan pursuant to Rule 12b-1 under
the 1940 Act to finance distribution expenses, then, subject to obtaining any
required exemptive orders or other regulatory approvals, the Fund may make
payments to the Company or to the underwriter for the Contracts if and in such
amounts agreed to by the Fund in writing.
5.2. All expenses incident to performance by the Fund of this Agreement
will be paid by the Fund to the extent permitted by law. The Fund will bear the
expenses for the cost of registration and qualification of the Fund's shares;
preparation and filing of the Fund's prospectus, statement of additional
information and registration statement, proxy materials and reports; setting in
type and printing the Fund's prospectus; setting in type and printing proxy
materials and reports by it to contractowners (including the costs of printing a
Fund prospectus that constitutes an annual report); the preparation of all
statements and notices required by any federal or state law; all taxes on the
issuance or transfer of the Fund's shares; any expenses permitted to be paid or
assumed by the Fund pursuant to a plan, if any, under Rule 12b-1 under the 1940
Act; and all other expenses set forth in Article III of this Agreement.
ARTICLE VI. Diversification and Qualification
---------------------------------
6.1. The Adviser will ensure that the Fund will at all times invest money
from the Contracts in such a manner as to ensure that the Contracts will be
treated as variable annuity contracts under the Internal Revenue Code and the
regulations issued thereunder. Without limiting the scope of the foregoing, the
Fund will comply with Section 817(h) of the Internal Revenue Code and Treasury
Regulation 1.817-5, as amended from time to time, relating to the
diversification requirements for variable annuity, endowment, or life insurance
contracts and any amendments or other modifications to such Section or
Regulation. In the event of a breach of this Article VI by the Fund, it will
take all reasonable steps: (a) to notify the Company of such breach; and (b) to
adequately diversify the Fund so as to achieve compliance within the grace
period afforded by Treasury Regulation 1.817-5.
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<PAGE>
6.2. The Fund represents that it is or will be qualified as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code, and that it
will make every effort to maintain such qualification (under Subchapter M or any
successor or similar provisions) and that it will notify the Company immediately
upon having a reasonable basis for believing that it has ceased to so qualify or
that it might not so qualify in the future.
6.3. The Company represents that the Contracts are currently, and at the
time of issuance shall be, treated as life insurance or annuity insurance
contracts, under applicable provisions of the Internal Revenue Code, and that it
will make every effort to maintain such treatment, and that it will notify the
Fund and the Distributor immediately upon having a reasonable basis for
believing the Contracts have ceased to be so treated or that they might not be
so treated in the future. The Company agrees that any prospectus offering a
contract that is a "modified endowment contract" as that term is defined in
Section 7702A of the Internal Revenue Code (or any successor or similar
provision), shall identify such contract as a modified endowment contract.
ARTICLE VII. Potential Conflicts
-------------------
7.1. The Fund Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the Contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict may
arise for a variety of reasons, including: (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state insurance,
tax, or securities laws or regulations, or a public ruling, private letter
ruling, no-action or interpretative letter, or any similar action by insurance,
tax, or securities regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the investments of
any Portfolio are being managed; (e) a difference in voting instructions given
by variable annuity contract and variable life insurance contract owners; or (f)
a decision by an insurer to disregard the voting instructions of contract
owners. The Fund Board shall promptly inform the Company if it determines that
an irreconcilable material conflict exists and the implications thereof.
7.2. The Company will report any potential or existing conflicts of which
it is aware to the Fund Board. The Company will assist the Fund Board in
carrying out its responsibilities under the Mixed and Shared Funding Exemptive
Order, by providing the Fund Board with all information reasonably necessary for
the Fund Board to consider any issues raised. This includes, but is not limited
to, an obligation by the Company to inform the Fund Board whenever Contract
owner voting instructions are disregarded.
7.3. If it is determined by a majority of the Fund Board, or a majority of
its disinterested members, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested Fund Board members), take whatever steps are necessary to remedy
or eliminate the irreconcilable material conflict, up to and including: (1)
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected contract owners and, as appropriate, segregating the assets of
any appropriate group (i.e., annuity contract owners, life insurance contract
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change; and (2) establishing a new
registered management investment company or managed separate account.
- 10 -
<PAGE>
7.4. If a material irreconcilable conflict arises because of a decision by
the Company to disregard Contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the Account's investment in
the Fund and terminate this Agreement with respect to each Account; provided,
however, that such withdrawal and termination shall be limited to the extent
required by the foregoing material irreconcilable conflict as determined by a
majority of the disinterested members of the Fund Board. Any such withdrawal and
termination must take place within six (6) months after the Fund gives written
notice that this provision is being implemented, and until the end of that six
month period the Fund shall continue to accept and implement orders by the
Company for the purchase (and redemption) of shares of the Fund.
7.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
affected Account's investment in the Fund and terminate this Agreement with
respect to such Account within six months after the Fund Board informs the
Company in writing that it has determined that such decision has created an
irreconcilable material conflict; provided, however, that such withdrawal and
termination shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the disinterested members
of the Fund Board. Until the end of the foregoing six month period, the Fund
shall continue to accept and implement orders by the Company for the purchase
(and redemption) of shares of the Fund.
7.6. For purposes of Section 7.3 through 7.6 of this Agreement, a majority
of the disinterested members of the Fund Board shall determine whether any
proposed action adequately remedies any irreconcilable material conflict, but in
no event will the Fund be required to establish a new funding medium for the
Contracts. The Company shall not be required by Section 7.3 to establish a new
funding medium for the Contract if an offer to do so has been declined by vote
of a majority of Contract owners materially adversely affected by the
irreconcilable material conflict. In the event that the Fund Board determines
that any proposed action does not adequately remedy any irreconcilable material
conflict, then the Company will withdraw the Account's investment in the Fund
and terminate this Agreement within six (6) months after the Fund Board informs
the Company in writing of the foregoing determination; provided, however, that
such withdrawal and termination shall be limited to the extent required by any
such material irreconcilable conflict as determined by a majority of the
disinterested members of the Fund Board.
7.7. If and to the extent the Mixed and Shared Funding Exemption Order or
any amendment thereto contains terms and conditions different from Sections 3.4,
3.5, 3.6, 7.1, 7.2, 7.3, 7.4, and 7.5 of this Agreement, then the Fund and/or
the Participating Insurance Companies, as appropriate, shall take such steps as
may be necessary to comply with the Mixed and Shared Funding Exemptive Order,
and Sections 3.4, 3.5, 3.6, 7.1, 7.2, 7.3, 7.4 and 7.5 of this Agreement shall
continue in effect only to the extent that terms and conditions substantially
identical to such Sections are contained in the Mixed and Shared Funding
Exemptive Order or any amendment thereto. If and to the extent that Rule 6e-2
and Rule 6e-3(T) are amended, or Rule 6e-3 is adopted, to provide exemptive
relief from any provision of the 1940 Act or the rules promulgated thereunder
with respect to mixed or shared funding (as defined in the Mixed and Shared
Funding Exemptive Order) on terms and conditions materially different from those
contained in the Mixed and Shared Funding Exemptive Order, then (a) the Fund
and/or the Participating Insurance Companies, as appropriate, shall take such
steps as may be necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and
Rule 6e-3, as adopted, to the extent such rules are applicable; and (b) Sections
3.5, 3.6, 7.1., 7.2, 7.3, 7.4, and 7.5 of this Agreement shall continue in
effect only to the
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<PAGE>
extent that terms and conditions substantially identical to such Sections are
contained in such Rule(s) as so amended or adopted.
ARTICLE VIII. Indemnification
---------------
8.1. Indemnification By The Company
------------------------------
(a) The Company agrees to indemnify and hold harmless the Fund, the
Adviser, the Distributor, and each person, if any, who controls or is
associated with the Fund, the Adviser or the Distributor within the meaning
of such terms under the federal securities laws and any director, trustee,
officer, partner, employee or agent of the foregoing (collectively, the
"Indemnified Parties" for purposes of this Section 8.1) against any and all
losses, claims, expenses, damages, liabilities (including amounts paid in
settlement with the written consent of the Company) or litigation
(including reasonable legal and other expenses), to which the Indemnified
Parties may become subject under any statute, regulation, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or expenses
(or actions in respect thereof) or settlements:
(1) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in the
registration statement, prospectus or statement of additional
information for the Contracts or contained in the Contracts or sales
literature or other promotional material for the Contracts (or any
amendment or supplement to any of the foregoing), or arise out of or
are based upon the omission or the alleged omission to state therein a
material fact required to be stated or necessary to make such
statements not misleading in light of the circumstances in which they
were made; provided that this agreement to indemnify will not apply as
to any Indemnified Party if such statement or omission or such alleged
statement or omission was made in reliance upon and in conformity with
written information furnished to the Company by the Fund, the Adviser
or the Distributor for use in the registration statement, prospectus
or statement of additional information for the Contracts or in the
Contracts or sales literature (or any amendment or supplement) or
otherwise for use in connection with the sale of the Contracts or Fund
shares; or
(2) arise out of or as a result of statements or representations
by or on behalf of the Company or wrongful conduct of the Company or
persons under its control, with respect to the sale or distribution of
the Contracts or Fund shares; or
(3) arise out of any untrue statement or alleged untrue statement
of a material fact contained in the Fund registration statement,
prospectus, statement of additional information or sales literature or
other promotional material of the Fund (or amendment or supplement) or
the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make such statements not
misleading in light of the circumstances in which they were made, if
such a statement or omission was made in reliance upon and in
conformity with information furnished to the Fund by or on behalf of
the Company or persons under its control; or
(4) arise as a result of any failure by the Company to
provide the services and furnish the materials under the terms
of this Agreement; or
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<PAGE>
(5) arise out of any material breach of any representation and/or
warranty made by the Company in this Agreement or arise out of or
result from any other material breach by the Company of this
Agreement;
except to the extent provided in Sections 8.1(b) and 8.3 hereof. This
indemnification will be in addition to any liability that the Company
otherwise may have.
(b) No party will be entitled to indemnification under Section 8.1(a)
to the extent such loss, claim, damage, liability or litigation is due to
the willful misfeasance, bad faith, or gross negligence in the performance
of such party's duties under this Agreement, or by reason of such party's
reckless disregard of its obligations or duties under this Agreement by the
party seeking indemnification.
(c) The Indemnified Parties promptly will notify the Company of the
commencement of any litigation, proceedings, complaints or actions by
regulatory authorities against them in connection with the issuance or sale
of the Fund shares or the Contracts or the operation of the Fund.
8.2. Indemnification By The Adviser, the Fund and the Distributor
------------------------------------------------------------
(a) The Adviser, the Fund and the Distributor, in each case solely to
the extent relating to such party's responsibilities hereunder, agree to
indemnify and hold harmless the Company and each person, if any, who
controls or is associated with the Company within the meaning of such terms
under the federal securities laws and any director, trustee, officer,
partner, employee or agent of the foregoing (collectively, the "Indemnified
Parties" for purposes of this Section 8.2) against any and all losses,
claims, expenses, damages, liabilities (including amounts paid in
settlement with the written consent of the Adviser) or litigation
(including reasonable legal and other expenses) to which the Indemnified
Parties may become subject under any statute, regulation, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or expenses
(or actions in respect thereof) or settlements:
(1) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
registration statement, prospectus or statement of additional
information for the Fund or sales literature or other promotional
material of the Fund (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be
stated or necessary to make such statements not misleading in light of
the circumstances in which they were made; provided that this
agreement to indemnify will not apply as to any Indemnified Party if
such statement or omission or such alleged statement or omission was
made in reliance upon and in conformity with information furnished to
the Adviser, the Distributor or the Fund by or on behalf of the
Company for use in the registration statement, prospectus or statement
of additional information for the Fund or in sales literature of the
Fund (or any amendment or supplement thereto) or otherwise for use in
connection with the sale of the Contracts or Fund shares; or
(2) arise out of or as a result of statements or representations
or wrongful conduct of the Adviser, the Fund or the Distributor or
persons under the control of the Adviser, the Fund or the Distributor
respectively, with respect to the sale of the Fund shares; or
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<PAGE>
(3) arise out of any untrue statement or alleged untrue statement
of a material fact contained in a registration statement, prospectus,
statement of additional information or sales literature or other
promotional material covering the Contracts (or any amendment or
supplement thereto), or the omission or alleged omission to state
therein a material fact required to be stated or necessary to make
such statement or statements not misleading in light of the
circumstances in which they were made, if such statement or omission
was made in reliance upon and in conformity with written information
furnished to the Company by the Adviser, the Fund or the Distributor
or persons under the control of the Adviser, the Fund or the
Distributor; or
(4) arise as a result of any failure by the Fund, the Adviser or
the Distributor to provide the services and furnish the materials
under the terms of this Agreement (including a failure, whether
unintentional or in good faith or otherwise, to comply with the
diversification requirements and procedures related thereto specified
in Article VI of this Agreement); or
(5) arise out of or result from any material breach of any
representation and/or warranty made by the Adviser, the Fund or the
Distributor in this Agreement, or arise out of or result from any
other material breach of this Agreement by the Adviser the Fund or the
Distributor;
except to the extent provided in Sections 8.2(b) and 8.3 hereof. This
indemnification will be in addition to any liability that the Fund, Adviser
or the Distributor otherwise may have.
(b) No party will be entitled to indemnification under Section 8.2(a)
to the extent such loss, claim, damage, liability or litigation is due to
the willful misfeasance, bad faith, or gross negligence in the performance
of such party's duties under this Agreement, or by reason of such party's
reckless disregard of its obligations or duties under this Agreement by the
party seeking indemnification.
(c) The Indemnified Parties will promptly notify the Adviser, the Fund
and the Distributor of the commencement of any litigation, proceedings,
complaints or actions by regulatory authorities against them in connection
with the issuance or sale of the Contracts or the operation of the account.
8.3. Indemnification Procedure
-------------------------
Any person obligated to provide indemnification under this Article VIII
("Indemnifying Party" for the purpose of this Section 8.3) will not be liable
under the indemnification provisions of this Article VIII with respect to any
claim made against a party entitled to indemnification under this Article VIII
("Indemnified Party" for the purpose of this Section 8.3) unless such
Indemnified Party will have notified the Indemnifying Party in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim will have been served upon such
Indemnified Party (or after such party will have received notice of such service
on any designated agent), but failure to notify the Indemnifying Party of any
such claim will not relieve the Indemnifying Party from any liability which it
may have to the Indemnified Party against whom such action is brought otherwise
than on account of the indemnification provision of this Article VIII, except to
the extent that the failure to notify results in the failure of actual notice to
the Indemnifying Party and such Indemnifying Party is damaged solely as a result
of failure to give such notice. In case any such action is brought against the
Indemnified Party, the
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<PAGE>
Indemnifying Party will be entitled to participate, at its own expense, in the
defense thereof. The Indemnifying Party also will be entitled to assume the
defense thereof, with counsel satisfactory to the party named in the action.
After notice from the Indemnifying Party to the Indemnified Party of the
Indemnifying Party's election to assume the defense thereof, the Indemnified
Party will bear the fees and expenses of any additional counsel retained by it,
and the Indemnifying Party will not be liable to such party under this Agreement
for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable costs
of investigation, unless: (a) the Indemnifying Party and the Indemnified Party
will have mutually agreed to the retention of such counsel; or (b) the named
parties to any such proceeding (including any impleaded parties) include both
the Indemnifying Party and the Indemnified Party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. The Indemnifying Party will not be liable for
any settlement of any proceeding effected without its written consent but if
settled with such consent or if there is a final judgment for the plaintiff, the
Indemnifying Party agrees to indemnify the Indemnified Party from and against
any loss or liability by reason of such settlement or judgment. A successor by
law of the parties to this Agreement will be entitled to the benefits of the
indemnification contained in this Article VIII. The indemnification provisions
contained in this Article VIII will survive any termination of this Agreement.
ARTICLE IX. Applicable Law
--------------
9.1 This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of the State of Delaware.
9.2 This Agreement shall be subject to the provisions of the 1933, 1934 and
1940 Acts, and the rules and regulations and rulings thereunder, including such
exemptions from those statutes, rules and regulations as the SEC may grant
(including, but not limited to, any Mixed and Shared Funding Exemptive Order)
and the terms hereof shall be interpreted and construed in accordance therewith.
If, in the future, the Mixed and Shared Funding Exemptive Order should no longer
be necessary under applicable law, then Article VII shall no longer apply.
ARTICLE X. Termination
-----------
10.1. This Agreement will terminate:
(a) at the option of any party, with or without cause, with respect to
some or all of the Designated Portfolios, upon sixty (60) days' advance
written notice to the other parties or, if later, upon receipt of any
required exemptive relief or orders from the SEC, unless otherwise agreed
in a separate written agreement among the parties; or
(b) at the option of the Company, upon receipt of the Company's
written notice by the other parties, with respect to any Designated
Portfolio if shares of the Designated Portfolio are not reasonably
available to meet the requirements of the Contracts as determined in good
faith by the Company; or
(c) at the option of the Company, upon receipt of the Company's
written notice by the other parties, with respect to any Designated
Portfolio in the event any of the Designated Portfolio's shares are not
registered, issued or sold in accordance with applicable state and/or
Federal law or such law precludes the use of such shares as the underlying
investment media of the Contracts issued or to be issued by Company; or
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<PAGE>
(d) at the option of the Fund, upon receipt of the Fund's written
notice by the other parties, upon institution of formal proceedings against
the Company by the NASD, the SEC, the insurance commission of any state or
any other regulatory body regarding the Company's duties under this
Agreement or related to the sale of the Contracts, the administration of
the Contracts, the operation of the Account, or the purchase of the Fund
shares, provided that the Fund determines in its sole judgment, exercised
in good faith, that any such proceeding would have a material adverse
effect on the Company's ability to perform its obligations under this
Agreement; or
(e) at the option of the Company, upon receipt of the Company's
written notice by the other parties, upon institution of formal proceedings
against the Fund, Adviser or the Distributor by the NASD, the SEC, or any
state securities or insurance department or any other regulatory body,
provided that the Company determines in its sole judgment, exercised in
good faith, that any such proceeding would have a material adverse effect
on the Fund's or the Distributor's ability to perform its obligations under
this Agreement; or
(f) at the option of the Company, upon receipt of the Company's
written notice by the other parties, if the Fund ceases to qualify as a
Regulated Investment Company under Subchapter M of the Internal Revenue
Code, or under any successor or similar provision, or if the Company
reasonably and in good faith believes that the Fund may fail to so qualify;
or
(g) at the option of the Company, upon receipt of the Company's
written notice by the other parties, with respect to any Designated
Portfolio if the Fund fails to meet the diversification requirements
specified in Article VI hereof or if the Company reasonably and in good
faith believes the Fund may fail to meet such requirements; or
(h) at the option of any party to this Agreement, upon written notice
to the other parties, upon another party's material breach of any provision
of this Agreement which material breach is not cured within thirty (30)
days of said notice; or
(i) at the option of the Company, if the Company determines in its
sole judgment exercised in good faith, that either the Fund, the Adviser or
the Distributor has suffered a material adverse change in its business,
operations or financial condition since the date of this Agreement or is
the subject of material adverse publicity which is likely to have a
material adverse impact upon the business and operations of the Company,
such termination to be effective sixty (60) days' after receipt by the
other parties of written notice of the election to terminate; or
(j) at the option of the Fund or the Distributor, if the Fund or the
Distributor respectively, determines in its sole judgment exercised in good
faith, that the Company has suffered a material adverse change in its
business, operations or financial condition since the date of this
Agreement or is the subject of material adverse publicity which is likely
to have a material adverse impact upon the business and operations of the
Fund or the Adviser, such termination to be effective sixty (60) days'
after receipt by the other parties of written notice of the election to
terminate; or
(k) at the option of the Company or the Fund upon receipt of any
necessary regulatory approvals and/or the vote of the contractowners having
an interest in the Account (or any subaccount) to substitute the shares of
another investment company for the corresponding Designated Portfolio
shares of the Fund in accordance with the terms of the Contracts for which
those Designated Portfolio shares had been selected to serve as the
underlying investment media.
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<PAGE>
The Company will give sixty (60) days' prior written notice to the Fund of
the date of any proposed vote or other action taken to replace the Fund's
shares; or
(l) at the option of the Company or the Fund upon a determination by a
majority of the Fund Board, or a majority of the disinterested Fund Board
members, that an irreconcilable material conflict exists among the
interests of: (1) all contractowners of variable insurance products of all
separate accounts; or (2) the interests of the Participating Insurance
Companies investing in the Fund as set forth in Article VII of this
Agreement; or
(m) at the option of the Fund in the event any of the Contracts are
not issued or sold in accordance with applicable federal and/or state law.
Termination will be effective immediately upon such occurrence without
notice.
10.2. Notice Requirement. No termination of this Agreement
-------------------
will be effective unless and until the party terminating this Agreement gives
prior written notice to all other parties of its intent to terminate, which
notice will set forth the basis for the termination.
10.3. Effect of Termination. Notwithstanding any termination
----------------------
of this Agreement, the Fund and the Distributor will, at the option of the
Company, continue to make available additional shares of the Fund pursuant to
the terms and conditions of this Agreement, for all Contracts in effect on the
effective date of termination of this Agreement ( hereinafter referred to as
"Existing Contracts.") . Specifically, without limitation, the owners of the
Existing Contracts will be permitted to reallocate investments in the Portfolios
(as in effect on such date), redeem investments in the Portfolios and/or invest
in the Portfolios upon the making of additional purchase payments under the
Existing Contracts.
10.4. Surviving Provisions. Notwithstanding any termination of
---------------------
this Agreement, each party's obligations under Article VIII to indemnify other
parties will survive and not be affected by any termination of this Agreement.
In addition, each party's obligations under Section 12.7 will survive and not be
affected by any termination of this Agreement. Finally, with respect to Existing
Contracts, all provisions of this Agreement also will survive and not be
affected by any termination of this Agreement.
ARTICLE XI. Notices
-------
11.1. Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to the Fund: The GCG Trust
c/o Myles Tashman
Secretary
1475 Dunwoody Drive
West Chester, PA 19380-1479
If to the Company: Security Life of Denver Insurance Company
c/o General Counsel
1290 Broadway
Denver, CO 80203-5699
- 17 -
<PAGE>
If to Adviser: Directed Services, Inc.
c/o Myles Tashman
Executive Vice President and General Counsel
1475 Dunwoody Drive
West Chester, PA 19380-1479
If to Distributor: ING America Equities, Inc.
c/o Chief Legal Officer
1290 Broadway
Denver, CO 80203-5699
ARTICLE XII. Miscellaneous
-------------
12.1. All persons dealing with the Fund must look solely to the property of
the Fund for the enforcement of any claims against the Fund as neither the
directors, trustees, officers, partners, employees, agents or shareholders
assume any personal liability for obligations entered into on behalf of the
Fund. No Portfolio or series of the Fund will be liable for the obligations or
liabilities of any other Portfolio or series.
12.2. The Fund, the Adviser and the Distributor acknowledge that the
identities of the customers of the Company or any of its affiliates
(collectively the "Company Protected Parties" for purposes of this Section
12.2), information maintained regarding those customers, and all computer
programs and procedures or other information developed or used by the Company
Protected Parties or any of their employees or agents in connection with the
Company's performance of its duties under this Agreement are the valuable
property of the Company Protected Parties. The Fund, the Adviser and the
Distributor agree that if they come into possession of any list or compilation
of the identities of or other information about the Company Protected Parties'
customers, or any other information or property of the Company Protected
Parties, other than such information as is publicly available or as may be
independently developed or compiled by the Fund, the Adviser or the Distributor
from information supplied to them by the Company Protected Parties' customers
who also maintain accounts directly with the Fund, the Adviser or the
Distributor, the Fund, the Adviser and the Distributor will hold such
information or property in confidence and refrain from using, disclosing or
distributing any of such information or other property except: (a) with the
Company's prior written consent; or (b) as required by law or judicial process.
The Company acknowledges that the identities of the customers of the Fund, the
Adviser, the Distributor or any of their affiliates (collectively the "Adviser
Protected Parties" for purposes of this Section 12.2), information maintained
regarding those customers, and all computer programs and procedures or other
information developed or used by the Adviser Protected Parties or any of their
employees or agents in connection with the Fund's, the Adviser's or the
Distributor's performance of their respective duties under this Agreement are
the valuable property of the Adviser Protected Parties. The Company agrees that
if it comes into possession of any list or compilation of the identities of or
other information about the Adviser Protected Parties' customers, or any other
information or property of the Adviser Protected Parties, other than such
information as is publicly available or as may be independently developed or
compiled by the Company from information supplied to them by the Adviser
Protected Parties' customers who also maintain accounts directly with the
Company, the Company will hold such information or property in confidence and
refrain from using, disclosing or distributing any of such information or other
property except: (a) with the Fund's, the Adviser's or the Distributor's prior
written consent; or (b) as required by law or judicial process. Each party
acknowledges that any breach of the agreements in this Section 12.2 would result
in immediate and irreparable harm to the other parties for which there would be
no adequate remedy at law and agree that in the event of such a breach, the
other parties will be entitled to equitable relief by way of temporary and
permanent injunctions, as well as such other relief as any court of competent
jurisdiction deems appropriate.
- 18 -
<PAGE>
12.3. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.4. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together will constitute one and the same
instrument.
12.5. If any provision of this Agreement will be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement will
not be affected thereby.
12.6. This Agreement will not be assigned by any party hereto without the
prior written consent of all the parties.
12.7. Each party to this Agreement will maintain all records required by
law, including records detailing the services it provides. Such records will be
preserved, maintained and made available to the extent required by law and in
accordance with the 1940 Act and the rules thereunder. Each party to this
Agreement will cooperate with each other party and all appropriate governmental
authorities (including without limitation the SEC, the NASD and state insurance
regulators) and will permit each other and such authorities reasonable access to
its books and records in connection with any investigation or inquiry relating
to this Agreement or the transactions contemplated hereby. Upon request by the
Fund or the Distributor, the Company agrees to promptly make copies or, if
required, originals of all records pertaining to the performance of services
under this Agreement available to the Fund or the Distributor, as the case may
be. The Fund agrees that the Company will have the right to inspect, audit and
copy all records pertaining to the performance of services under this Agreement
pursuant to the requirements of any state insurance department. Each party also
agrees to promptly notify the other parties if it experiences any difficulty in
maintaining the records in an accurate and complete manner. This provision will
survive termination of this Agreement.
12.8. Each party represents that the execution and delivery of this
Agreement and the consummation of the transactions contemplated herein have been
duly authorized by all necessary corporate or board action, as applicable, by
such party and when so executed and delivered this Agreement will be the valid
and binding obligation of such party enforceable in accordance with its terms.
12.9. The parties to this Agreement may amend the schedules to this
Agreement from time to time to reflect changes in or relating to the Contracts,
the Accounts or the Designated Portfolios of the Fund or other applicable terms
of this Agreement.
12.10. The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights.
[12.11. If Fund is a Mass business trust - The parties to this Agreement
acknowledge and agree that all liabilities of the Fund arising, directly or
indirectly, under this agreement, will be satisfied solely out of the assets of
the Fund and that no trustee, officer, agent or holder of shares of beneficial
interest of the Fund will be personally liable for any such liabilities. ]
- 19 -
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on its behalf by its duly authorized representative
and its seal to be hereunder affixed hereto as of the date specified below:
SECURITY LIFE OF DENVER INSURANCE
COMPANY:
By: __________________________
Title: _______________________
Date: ________________________
THE GCG TRUST:
By: __________________________
Title: _______________________
Date: ________________________
DIRECTED SERVICES, INC :
By: __________________________
Title: _______________________
Date: ________________________
ING AMERICA EQUITIES, INC.
By: __________________________
Title: _______________________
Date: ________________________
- 20 -
<PAGE>
SCHEDULE A
SECURITY LIFE OF DENVER INSURANCE COMPANY
CONTRACTS AND SEPARATE ACCOUNT(S)
CONTRACT(S):
Variable Universal Life Contract
SEPARATE ACCOUNT(S):
Separate Account L1 of Security Life of Denver
Insurance Company
SCHEDULE B
THE GCG TRUST
DESIGNATED PORTFOLIOS
PORTFOLIOS:
Equity Income Series
Fully Managed Series
Limited Maturity Bond Series
Hard Assets Series
Real Estate Series
All-Growth Series
Liquid Asset Series
Capital Appreciation Series
Rising Dividends Series
Emerging Markets Series
Market Manager Series
Value Equity Series
Strategic Equity Series
Small Cap Series Mid-Cap Growth Series
Total Return Series
Research Series
Growth & Income Series
Growth Series
Global Fixed Income Series
Growth Opportunities Series
Developing World Series
International Equity Series
Value Equity Series
Capital Fund Series
Investors Fund Series
Schedule Date:
- 21 -
Exhibit 1.A(10)
[logo of ING Security Life] Security Life of Denver Insurance Company
Variable Life Customer Service Center
P.O. Box 173888
Denver, CO 80217-3885
1-800-848-6362
Fax: 303-860-2695
GUARANTEED ISSUE VARIABLE LIFE INSURANCE APPLICATION
_
1 |_| Check here if for PENSION or similar tax qualified plan. State plan type
in Special Instructions.
SECTION A - PROPOSED INSURED
<TABLE>
<S> <C> <C> <C> <C>
2 Name (First Middle Last) Birthdate (Mo/Day/Yr) Birthstate Sex
_ _
|_| M |_| F
Home Address (Street, Apt. No.) City State Zip Code
Social Security Number Home Phone ( ) Work Phone ( )
</TABLE>
3a Occupation:________________________________ 3b Date of Hire:_____________
4a Is Proposed Insured currently actively at work on a full time basis
performing all duties of Proposed Insured's regular occupation, at Proposed
Insured's customary place of employment for at least 30 hours per week?
_ _
|_| Yes |_| No If "No" explain:
____________________________________________________________________________
4b Has Proposed Insured: (1) been absent from work due to illness or medical
treatment for a period of 5 business days or more within the last 90 days;
or (2) been hospitalized for any reason during this same period?
_ _
|_| Yes |_| No If "Yes" explain:
____________________________________________________________________________
5 Has Proposed Insured used tobacco (cigarettes, cigars, chewing tobacco,
pipe, nicotine substitutes, etc.) or any other substance containing nicotine
within the last 12 months?
_ _
|_| Yes |_| No If "Yes," what type and frequency?
____________________________________________________________________________
6 Is this insurance to replace, or will it cause any change in, any existing
life insurance or annuity on any person proposed for coverage?
_ _
|_| Yes |_| No If "Yes" submit a completed replacement form with this
application.
SECTION B - OWNER (IF OTHER THAN PROPOSED INSURED)
7a Owner's Name and Address 7b Owner's Social Security Number
(or Tax I.D. Number)
7c Owner's Relationship to Proposed
Insured
1
Q2009-11/97 (Guaranteed Issue Application)
<PAGE>
SECTION C - BENEFICIARIES
8a Primary Beneficiary_______________________ Relationship to Insured_________
(or Trust information) Social Security Number (or Tax I.D. Number)________
8b Contingent Beneficiary____________________ Relationship to Insured_________
(or Trust information) Social Security Number (or Tax I.D. Number)________
SECTION D - BILLING
9 Employer's Name and Address 10 Mailing address (for Premium
Notices and Correspondence)
11 Payment Method: List bill 12 Premium Mode:
SECTION E - PLAN INFORMATION - FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
13 Product 14 Policy Issue Date
(Mo/Day/Yr):________________________
15 Guaranteed Issue Version 16 Unisex Version
17a Stated Death Benefit 17b Definition of Life Insurance Test:
_
|_| Guideline Annual Premium Test
_
|_| Cash Value Accumulation Test
17c Death Benefit Options:
_
|_| Option 1 (Stated Death Benefit)
_
|_| Option 2 (Stated Death Benefit plus
account value)
_
|_| Option 3 (Stated Death Benefit plus
premiums paid minus withdrawals
SECTION F - GUARANTEED MINIMUM DEATH BENEFIT OPTION
18 GUARANTEE PERIOD (SELECT ONE, IF OPTION DESIRED; OTHERWISE THERE WILL BE NO
GUARANTEED PERIOD)
_ _
|_| Later of ten years or proposed insured's age 65 |_| Lifetime of
proposed insured
Note: The Guarantee Period will terminate if:
a. You fail to pay the required Guarantee Period Annual premium defined in
your prospectus; or
b. Your Account Value on any Monthly Processing date is not diversified
according to the following rules:
1. No more than 35% of your Net Account Value may be invested in any one
division; and
2. Your Net Account Value must be invested in at least FIVE divisions.
You will satisfy these diversification requirements if: (i) you
participate in the Automatic Rebalancing feature defined in and governed
by the policy prospectus in effect at the time you elect the Guarantee
Period and your Automatic Rebalancing allocations comply with the
diversifications specified above; or (ii) you elect Dollar Cost Averaging
and direct the resulting transfers into at least four other Divisions
with no more than 35% of any transfer being to any one division.
There may be other circumstances that will cause the Guarantee Period to
terminate before its scheduled expiration date. See your prospectus for
further information.
2
Q2009-11/97 (Guaranteed Issue Application)
<PAGE>
SECTION G - SUITABILITY
19 a. Have you, the Proposed Insured, and the Owner, if other than the
Proposed Insured, received a current Prospectus dated ________________
for the Variable Life Insurance policy applied for and current prospectus
_ _
for each of the Variable Account Divisions? |_| Yes |_| No
b. DO YOU UNDERSTAND THAT UNDER THE POLICY APPLIED FOR THE AMOUNT OR
DURATION OF THE DEATH BENEFIT MAY VARY UNDER SPECIFIED CONDITIONS; POLICY
VALUES MAY INCREASE OR DECREASE IN ACCORDANCE WITH THE INVESTMENT
EXPERIENCE OF INVESTMENT DIVISIONS IN A SEPARATE ACCOUNT, AND MAY
INCREASE IN ACCORDANCE WITH THE INTEREST CREDITED IN THE GUARANTEED
INTEREST DIVISION; AND THE AMOUNT PAYABLE AT THE FINAL POLICY DATE IS NOT
GUARANTEED BUT IS DEPENDENT ON THE AMOUNT THEN IN THE ACCOUNT VALUE?
_ _
|_| YES |_| NO
c. Do you understand that any personalized illustrations received are based
on hypothetical interest assumptions which may not be indicative of
actual future investment experience of our Separate Account or of actual
_ _
interest credited in our Guaranteed Interest Division? |_| Yes |_| No
d. With this in mind, is the policy in accord with your insurance objectives
_ _
and your anticipated financial needs? |_| Yes |_| No
20 Special Instructions
HOME OFFICE CORRECTIONS (INSURANCE COMPANY USE ONLY)
(NOT APPLICABLE IN NORTH DAKOTA, OREGON, PENNSYLVANIA, AND WEST VIRGINIA.)
3
Q2009-11/97 (Guaranteed Issue Application)
<PAGE>
<TABLE>
<CAPTION>
FRAUD WARNINGS (FOR ALL STATES EXCEPT OREGON)
<S> <C>
FOR APPLICANTS IN ALL STATES Any person who knowingly and with intent to injure, defraud, or deceive any insurance company,
EXCEPT COLORADO, CONNECTICUT, files an application, statement or claim containing any false, incomplete, or misleading information
PENNSYLVANIA AND VIRGINIA: may be guilty of insurance fraud.
FOR APPLICANTS IN COLORADO: IT IS UNLAWFUL TO KNOWINGLY PROVIDE FALSE, INCOMPLETE, OR MISLEADING FACTS OR INFORMATION TO AN
INSURANCE COMPANY FOR THE PURPOSE OF DEFRAUDING OR ATTEMPTING TO DEFRAUD THE COMPANY. PENALTIES MAY
INCLUDE IMPRISONMENT, FINES, DENIAL OF INSURANCE, AND CIVIL DAMAGES. ANY INSURANCE COMPANY OR AGENT
OF AN INSURANCE COMPANY WHO KNOWINGLY PROVIDES FALSE, INCOMPLETE, OR MISLEADING FACTS OR INFORMATION
TO A POLICYHOLDER OR CLAIMANT FOR THE PURPOSE OF DEFRAUDING OR ATTEMPTING TO DEFRAUD THE
POLICYHOLDER OR CLAIMANT WITH REGARD TO A SETTLEMENT OF AWARD PAYABLE FROM INSURANCE PROCEEDS SHALL
BE REPORTED TO THE COLORADO DIVISION OF INSURANCE WITHIN THE DEPARTMENT OF REGULATORY AGENCIES.
FOR APPLICANTS IN CONNECTICUT: Any person who knowingly and with intent to injure, defraud, or deceive any insurance company, files
an application, statement or claim containing any false, incomplete, or misleading information may
be guilty of insurance fraud as determined by a court of competent jurisdiction.
FOR APPLICANTS IN PENNSYLVANIA: Any person who knowingly and with intent to defraud any insurance company or other person files an
application for insurance or statement of claim containing any materially false information or
conceals for the purpose of misleading, information concerning any fact material thereto commits a
fraudulent insurance act, which is a crime and subjects such person to criminal and civil penalties.
FOR APPLICANTS IN VIRGINIA: Any person who with intent to defraud, or knowing that he is facilitating a fraud against an
insurer, submits an application, statement or files a claim containing false, or deceptive statement
may have violated state law.
</TABLE>
AGREEMENTS: All statements and answers in this application (which
includes supplements and amendments) are true and complete to the best of
my knowledge and belief. I also agree that:
1. The statements and answers in this application will be relied upon and form
the basis of any insurance.
2. No information will be considered as having been given to Security Life
unless it is written in this application. (THIS PARAGRAPH DOES NOT APPLY IN
THE STATES OF ALASKA, MAINE, MISSOURI, OREGON, SOUTH CAROLINA, SOUTH DAKOTA
AND WISCONSIN.)
3. No agent or any other unauthorized person can make or change any insurance
contract or give up any of Security Life's rights or requirements. Any
change must be in writing and signed by an officer of Security Life.
4. Security Life may amend this application by an appropriate notation in the
space designated "Home Office Corrections" in order to correct errors or
omissions or to conform the application with any policy that may be issued.
The acceptance of the policy constitutes a ratification of such amendments.
(THIS PARAGRAPH DOES NOT APPLY IN THE STATES OF NORTH DAKOTA, OREGON,
PENNSYLVANIA, AND WEST VIRGINIA.) In those states, including Maryland, where
change in amount, age at issue, classification, plan, premium, or benefit
requires the written consent of the applicant, no change may be ratified
except by a written acceptance. We reserve the right to make any changes
required by law.
5. INSURANCE UNDER POLICY APPLIED FOR - EXCEPT AS MAY BE PRO- VIDED IN ANY
COVERAGE PROVIDED BY A CONDITIONAL RECEIPT, NO POLICY OF INSURANCE WILL BE
IN FORCE UNTIL (1) THE FIRST POLICY PREMIUM IS PAID AND (2) THE POLICY IS
DELIVERED WHILE THE FACTS AND HEALTH CONDITION OF THE PROPOSED INSURED(S)
ARE AS REPRESENTED IN THIS APPLICATION. WHEN THESE CONDITIONS ARE SATISFIED,
THE POLICY AS DELIVERED WILL THEN TAKE EFFECT.
6. I certify, under penalty of perjury, that my social security/tax
identification number(s) is shown and is correct and that I am not subject
to back up withholding.
7. If the contract applied for is for a pension, profit-sharing, HR10, or other
tax qualified plan, any policy issued shall not be transferable other than
to the insurer, except as directed by the Plan Administrator. Other
applicable provisions may be added to the contract.
I know of nothing else affecting the risk. In addition to the Agreements above,
I have read and agree to the information and agreements contained in Section 21,
Special Instructions.
- -> Signature of Proposed Insured________________________ -> Date______________
- -> Signature of Owner___________________________________ -> Date______________
(If other than Proposed Insured)
- -> Name and Title of Owner______________________________________________________
(If owner is a business entity, print the business entity's name and the
title of person signing.)
- -> APPLICATION SIGNED BY PROPOSED INSURED OR OWNER (IF OTHER THAN PROPOSED
INSURED) IN: -> STATE ____________
AGENT USE ONLY (Please print)
Do you have knowledge or reason to believe that replacement of existing life
_ _
insurance or annuity may be involved? |_| Yes |_| No
If "Yes" please provide appropriate replacement forms.
<TABLE>
<S> <C> <C>
Signature of Agent/Registered Rep________________________________ Reg. Rep Number____________ % Split__________
Signature of Agent/Registered Rep________________________________ Reg. Rep Number____________ % Split__________
Signature of Agent/Registered Rep________________________________ Reg. Rep Number____________ % Split__________
</TABLE>
________________________________________ _____________________________________
Name of Broker/Dealer/Branch/OSJ Name of Broker/Dealer/Branch/OSJ
4
Q2009-11/97 (Guaranteed Issue Application)
<PAGE>
[Logo of Security Life] Security Life of Denver
Insurance Company
1290 Broadway
Denver, CO 80203-5699
Guaranteed Issue
Binding Limited Life Insurance Coverage
For premium(s) received from the employer in connection with the following
Guaranteed Issue Applications, Security Life provides a limited amount of life
insurance coverage for a short time while it decides whether to issue and
deliver the policy or certificate applied for. This coverage is subject to the
terms and conditions set out below.
<TABLE>
<CAPTION>
AMOUNT | AMOUNT
PROPOSED PREMIUM OF LIMITED | PROPOSED PREMIUM OF LIMITED
APP.# INSURED RECEIVED LIFE INS. | APP.# INSURED RECEIVED LIFE INS.
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
______ _________________________ ________ ___________ | ______ _________________________ ________ ___________
______ _________________________ ________ ___________ | ______ _________________________ ________ ___________
______ _________________________ ________ ___________ | ______ _________________________ ________ ___________
______ _________________________ ________ ___________ | ______ _________________________ ________ ___________
______ _________________________ ________ ___________ | ______ _________________________ ________ ___________
______ _________________________ ________ ___________ | ______ _________________________ ________ ___________
______ _________________________ ________ ___________ | ______ _________________________ ________ ___________
______ _________________________ ________ ___________ | ______ _________________________ ________ ___________
______ _________________________ ________ ___________ | ______ _________________________ ________ ___________
______ _________________________ ________ ___________ | ______ _________________________ ________ ___________
______ _________________________ ________ ___________ | ______ _________________________ ________ ___________
</TABLE>
TERMS AND CONDITIONS
AMOUNT OF COVERAGE
If a Proposed Insured dies while this coverage is in effect, Security Life will
pay the Amount of Limited Life Insurance on the Proposed Insured set out above.
There is no premium waiver coverage.
DATE COVERAGE BEGINS
Coverage on the Proposed Insured under this agreement starts when a premium has
been accepted while the Proposed Insured is currently engaged in active
full-time work. Active full-time work is working at least 30 hours per week in a
normal capacity with no hospitalizations and no absences from work due to
illness or accident (except absences due to minor illnesses or accidents for no
more than 5 total days during the 3-month period).
DATE COVERAGE ENDS
The coverage on the Proposed Insured will end automatically on the EARLIEST of
the dates:
o Security Life returns the premium(s)
o Five days after Security Life mails a notice of termination to the owner's
address on the Application; or
o Coverage starts under any Security Life policy or certificate resulting from
Application.
Security Life may send the notice of return premium(s) at any time before
delivery of the policy or certificate.
There is no insurance coverage if:
o The Proposed Insured dies by suicide, or self-inflicted injury;
o The premium check is not honored; or
o The Proposed Insured is not currently engaged in active full-time work at
the time the premium is accepted.
BENEFICIARY
Any benefit will be paid to the beneficiary named in the application on the
Proposed Insured. If death is before such an application is completed, it will
be paid to (check one):
_
|_| Proposed Insured's estate, or
_
|_| Other __________________________________________________
Premiums for an application will be returned if: an application is not approved;
or a benefit is paid under this coverage; or any condition of the Guaranteed
Issue offer is not met.
No agent can waive or modify this coverage in any way.
- --------------------------------------------------------------------------------
No premium may be accepted if:
o the Proposed Insured is not currently engaged in active
full-time work; or
o any condition of the Guaranteed Issue offer is not met.
The amount of Limited Life Insurance shall be no more than the lesser of:
the amount specified in the Guaranteed Issue offer; or $3 million.
- --------------------------------------------------------------------------------
Agreed to on ______________________________, 19________
_____________________________________________(EMPLOYER)
By ____________________________________________________
Print employer's name and have officer sign.
Agent _________________________________________________
Q1112 B-6/98 HOME OFFICE COPY
<PAGE>
Initial Premium Allocation. Please allocate your Initial Premium to the
Guaranteed Interest Division and/or among the Separate Account Divisions. Please
use whole number percentages for each Division elected. You must allocate at
least 1% of your Premium Allocation to each Division in which you elect to
invest. The total must equal 100%.
% GUARANTEED INTEREST DIVISION
- --------
SEPARATE ACCOUNT INVESTMENT OPTIONS
- --------------------------------------------------------------------------------
<TABLE>
AIM INVESCO Van Eck
<S> <C> <C>
% V.I. Government Securities % Equity Income % Worldwide Emerging Markets
- --------- --------- ---------
% V.I. Capital Appreciation % High Yield % Worldwide Bond
- --------- --------- ---------
% Utilities % Worldwide Real Estate
--------- ---------
Alger American % Total Return
---------
% Small Capitalization % VIF Small Company Growth GCG Trust
- --------- ---------
% MidCap Growth % Growth
- --------- ---------
% Growth Neuberger Berman % Research
- --------- ---------
% Limited Maturity Bond % Equity Income
--------- ---------
Fidelity Investments % Partners Portfolio % MidCap Growth
--------- ---------
% Growth Portfolio % Hard Assets
- --------- ---------
% Overseas % Liquid Assets Money Market
- --------- ---------
% Index 500 % Limited Maturity Bond
- --------- ---------
</TABLE>
Automatic Telephone Privileges
I acknowledge that my policy automatically will provide telephone transfer
privileges and telephone allocation change privileges as described in the
current prospectus to me as policy owner and to my agent/registered
representative. I also agree that ING Security Life and its distributor will not
be liable for any loss, damage, costs or expenses incurred in acting on
telephone instructions reasonably believed to be authentic. ING Security Life
may employ procedures which might include requiring forms of personal
identification before accepting such telephone instructions. I understand that
if I do not want myself or my agent/registered representative to have such
telephone privileges, I must indicate so below. I also understand that once
granted, such privilege can be revoked only upon receipt of signed, written
instructions at ING Security Life.
_
|_| I do not want telephone transfer or allocation privileges.
_
|_| I do not want telephone transfer or allocation privileges granted
to my agent/registered representative.
(Guaranteed Issue Application) Insert Corporate Benefits
EXHIBIT 6.B
[Letterhead of Security Life here]
February 1, 2000
Security Life of Denver Insurance Company
1290 Broadway
Denver, CO 80203-5699
Re: Security Life Separate Account L1
Pre-Effective Amendment No. 2; SEC File No. 333-90577
Gentlemen:
In my capacity as Executive Vice President and Chief Actuary of Security Life of
Denver Insurance Company ("Security Life"), I have provided actuarial advice
concerning:
The preparation of Pre-Effective Amendment No. 2 to the Registration Statement
on Form S-6 (File No. 333-90577) to be filed by Security Life and its Security
Life Separate Account L1 (the "Separate Account") with the Securities and
Exchange Commission ("SEC") under the Securities Act of 1933 with respect to the
corporate benefits variable universal life insurance policies; and
The preparation of the policy forms for the corporate benefits variable
universal life insurance policies described in Pre-Effective Amendment No. 2
(the "Policies").
It is my professional opinion that
1. The aggregate fees and charges under the Policies are reasonable in relation
to the services rendered the expenses expected to be incurred and the risks
assumed by Security Life.
2. The illustrations of death benefits, account value, cash surrender value,
and total premiums paid plus interest at 5 percent shown in the Prospectus,
based on the assumptions stated in the illustration are consistent with the
provisions of the Policies. The rate structures of the Policies have not
been designed so as to make the relationship between premiums and benefits,
as shown in the illustrations included, appear to be correspondingly more
favorable to prospective buyers than other illustrations which could have
been provided at other combinations of ages, sex of the insured, death
benefit option and amount, definition of life insurance test, premium class,
and premium amounts. Insureds of other premium classes may have higher costs
of insurance charges.
3. All other numerical examples shown in the Prospectus are consistent with the
Policies and our other practices, and have not been designed to appear more
favorable to prospective buyers than other examples which could have been
provided.
I hereby consent to the filing of this opinion as an Exhibit to Pre-Effective
Amendment No. 2 to the Registration Statement and the use of my name under the
heading "Experts" in the Prospectus.
Sincerely,
/s/ James L. Livingston, Jr.
James L. Livingston, Jr., F.S.A., M.A.A.A.
JLL:tls
Exhibit 7.A
Consent of Independent Auditors
We consent to the reference to our firm under the captions "Experts" and
"Financial Statements" and to the use of our reports dated April 5, 1999 (with
respect to the financial statements of Security Life Separate Account L1 and the
consolidated financial statements of Security Life of Denver Insurance Company
and Subsidiaries), in Pre-Effective Amendment No. 2 to the Registration
Statement (Form S-6 No. 333-90577) and related Prospectus of Security Life of
Denver Insurance Company and Security Life Separate Account L1 as filed with the
Securities and Exchange Commission on February 2, 2000.
/s/ ERNST & YOUNG LLP
Denver, Colorado
February 2, 2000
Exhibit 7.B
[Sutherland Asbill & Brennan LLP]
CONSENT OF SUTHERLAND ASBILL & BRENNAN LLP
We consent to the reference to our firm in the prospectus included in
Pre-Effective Amendment No. 2 to the Registration Statement on Form S-6 for
Security Life Separate Account L1 (File No. 333-90577). In giving this consent,
we do not admit that we are in the category of persons whose consent is required
under Section 7 of the Securities Act of 1933.
SUTHERLAND ASBILL & BRENNAN LLP
By: /s/ Kimberly J. Smith
---------------------------
Kimberly J. Smith
Washington, D.C.
February 1, 2000
